by Kristen Gavazzi
There is a definite learning curve during divorce when one spouse has handled the major financial decisions while the other spouse has either relinquished control of those decisions or didn’t fully understand the decisions being made. Most houses are financed via a mortgage and although “house” and “mortgage” seem to go hand-in-hand, this is not the case.
Home is An Asset, But Don’t Forget the Mortage is a Debt
A house, and the equity associated with it, is considered to be an asset on the marital balance sheet whereas the balance on the mortgage is considered to be a debt. The process for dividing the two are very different in terms of cost and the amount of time necessary to separate the two.
As far as the house is concerned, transferring the property from one spouse to the other is done by simply signing a Quit Claim Deed, having it notarized, and recording it with the County. Easy peasy, right? Not so fast.
Even though one spouse is off the deed, that same spouse is still on the hook for the mortgage loan amount if the loan is currently held in both names. If you overlook this during a divorce you can land yourself in post-divorce hot water.
Let’s take a closer look at what can happen if both of your names are on the mortgage. If the spouse awarded the property fails to make the mortgage payments on time, then the other spouse’s credit is going to take a big hit if they are still associated with the loan. Therefore, it’s always a good idea to get a clause put in your divorce dissolution documents that only puts you at risk until the mortgage can be refinanced and the non-house spouse can be taken off the loan documents. But this can be tricky as well.
Whoever Takes on The House Has to Qualify for a Refi of the Mortgage
The spouse that plans to take over 100% ownership of the house will need to qualify to refinance the mortgage in their own name. Sometimes this is easier said than done, especially if the spouse taking over the house has no active income.
At this point, and actually prior to asking for the house in any divorce settlement, you should always consult a mortgage lender to understand all available options to qualify both now and post-divorce.
Education is the key to making an informed decision, however, just because something is possible doesn’t mean it’s a good financial decision.
About the Author: Kristen Gavazzi is a real estate agent with The Volen Group, Keller Williams Realty Atlantic Partners. She has her RCS-D designation (Real Estate Collaborative Specialist for Divorce) and is ready to help you navigate your house decision.