What Happens to a Mortgage in a Connecticut Divorce?
Westport Divorce Attorney
It is a question that gets pushed aside amid figuring out child custody, money, and other asset division during divorce proceedings, but one that can have a lasting financial effect on both parties to a divorce. A home, like other marital property, must be divided upon divorce along with the associated mortgage. Removing one spouse’s name from the deed, refinancing the mortgage under one person’s name, buying out the other person’s share of the home, or selling the home are all possibilities at this juncture. However, understanding how to protect yourself from future liability as well as what your rights and responsibilities are under the divorce decree are instrumental in getting through this difficult part of your life.
A Home (and its Mortgage) Are Marital Property
With very few exceptions, any income, asset, benefit, or tangible or intangible property obtained during the term of a marriage is considered marital property. Even if the asset is listed only in one person’s name, it is still considered marital property for the purposes of divorce. Marital property is divisible upon divorce, and each party has a claim to it. Some intangible things such as a mortgage, where you have both a loan and equity in the property, can be extremely difficult to divide. If only one spouse’s name is on the mortgage, the other spouse still has a stake in the equity of the home. If both spouse’s names are on the mortgage, which is likely for most homeowners, then both the mortgage and the equity must be divided upon divorce.
The easiest thing to do is sell the house and divide the proceeds. However, this has become infeasible in recent years. Divorce rates are high, and people cannot afford to simply find somewhere new to live, carrying their children in tow. Plus, children want to stay in the homes they grew up in, parents have jobs near their homes, and people have made investments and sacrifices for the home they own—and giving it up is not something people want to do.
Options for Divorcing Couples in Connecticut
Inevitably, however, something has to give. If selling the house is not a favorable option, there are other amicable outcomes that will allow for a transfer of the property from one spouse to another. The two best options are: 1) refinancing the home in only one spouse’s name, or 2) having one spouse “buy out” the other’s share of the property, which generally also involves refinancing. Of course, if you are fortunate to have an amicable divorce, you could always maintain the mortgage and just both continue paying on it.
Refinancing is a seemingly quick fix, but it is not without its downfalls. First, a refinance in one person’s name presupposes that person is eligible for a refinance. Refinancing a mortgage requires a requisite credit score, income, and payment history, things that can be difficult to back with only one person’s salary being accounted for. Additionally, there are fees associated with refinancing that can amount to three to six percent of the outstanding principal balance on the home. Paying out additional money during a divorce proceeding is not something most people want to be doing. The refinancing party will also have to pay out equity in the home to the other spouse as part of the settlement agreement.
A divorce decree may enumerate a buy out, where one spouse will pay to take over the other person’s share of the property. One spouse essentially has to sign over his rights by deed, but this affects the title of the physical property only and does not affect the mortgage. To deal with the mortgage issue, a lender will have to agree to release one of the individuals from the mortgage. Lenders are not required to do this, and even if they do, there are associated fees and waiting periods that can delay finalizing the divorce. This will involve refinancing as well, but will ultimately protect both parties from future liability to one another.
Whoever’s name is on the mortgage is liable for the full mortgage if the other party listed defaults on the payments. This is why it is so critical to ensure your name is properly removed from the mortgage if you are the one being bought out. Even if your name is still on the mortgage, but not the deed, you will still be liable if your former spouse fails to pay, which can significantly damage your credit, financial health, and ability to get a mortgage of your own in the future. Some people may think they can just agree to have one person continue paying on the mortgage to avoid the headache of having to refinance and pay the associated fees. Beware, however, that oral agreements can be difficult to enforce. When we are talking about something as important as your credit and financial health, it is never a good idea to leave anything to chance or even trust. Every term of your agreement should be in the divorce decree, and something as substantial as a mortgage should be discussed thoroughly before finalizing the divorce.
Fairfield County Divorce Attorney
Your home is your greatest asset and one of the most difficult to divide upon divorce. Westport divorce attorney Richard H. Raphael understands how division of marital property and divorce proceedings work and can help you navigate through this difficult time. He will advocate on your behalf to ensure that you receive everything that you are entitled to in the divorce and that you limit your potential liability to lenders or your ex-spouse in the future. Contact his Westport, Connecticut law office today to learn more about your legal rights in a divorce today at 203-226-6168 or fill out the online contact form.