Dividing property at the end of a marriage can have long-term financial consequences. A couple’s home is typically their greatest asset but can become an unbearable financial burden for the spouse who keeps it after divorce.
There are several strategies to deal with this. Selling may appear to be the most straight forward. But there are many issues such as both spouses reaching agreement on a realtor, the asking price and how mortgage payments will be made until it is sold.
Other considerations include dividing any sale profits after the outstanding mortgage is paid off or how the mortgage will be paid if the outstanding mortgage exceeds the sale proceeds. The sale may also impact taxes.
A spouse keeping their home may face an insurmountable burden of paying the mortgage, taxes and upkeep. They should calculate whether they can meet these expenses and other financial obligations such as car payments, utilities, insurance and a retirement plan. Several options may be available.
First, they can buy out the other spouse’s interest and remove their name from the deed. If the cash is unavailable, the spouse can surrender an asset in negotiations equal to the home’s equity such as an investment account or 401(k).
Most judges will require the spouse to refinance the loan so that their ex-spouse does not remain on the mortgage. This may be another obstacle because the spouse is now relying only on one income and may not have a solid credit score or adequate savings.
If refinancing is unavailable, the lender can recast the loan if they expect a large windfall such as a tax refund, an inheritance or spousal support from an ex-spouse’s future bonuses. The lender can apply that to the principal payment and recast the mortgage which is a less expensive way of freeing up monthly cash flow. Other less attractive financing options include taking money from retirement funds or renting out the property.
Next, both spouses can continue to own the home. This requires lots of trust because they are both responsible for the mortgage and other expenses. One spouse’s failure to make timely payments can cause, debt, foreclosure, bankruptcy or poor credit.
There are many options that an attorney can present. They can help seek a decree that protects financial security.