Most married couples have to obtain a mortgage to purchase real property. Cash purchases of primary residences are increasingly uncommon given the slow but steady increase in housing prices. Couples often combine their incomes so they can qualify for bigger mortgages and better homes. They may then spend three decades paying off the principal balance on the property they just purchased together.
Not all marriages last until the full repayment of a mortgage. Many couples divorce with an outstanding principal balance still due on their mortgages.
What happens to a mortgage during a divorce?
Couples often decide to refinance
Particularly when there are children in the family, one spouse might end up staying in the marital home after the divorce. That spouse might refinance the mortgage as part of the divorce process. They can assume the mortgage and remove the other spouse’s name from the mortgage paperwork. That refinancing process might involve withdrawing a substantial amount of equity to compensate the other spouse for their interest in the property. In such cases, the principal balance on the mortgage and, therefore, the monthly payments required may increase.
Spouses may need a contract
There are several scenarios in which refinancing may not occur. Spouses may agree to a birdnesting custody arrangement where they both live part-time in the home when they have parenting time with their children. Other times, one spouse may agree to leave their name on the mortgage because the other cannot qualify for a mortgage on their own.
In some cases involving high-asset couples and dependent children, one parent might agree to pay the mortgage entirely despite the other remaining at the home after the divorce. In such scenarios, written agreements between the spouses relating to the cost of home maintenance and the eventual future transfer of the property are typically necessary.
Couples can use their debts, including their mortgages, to balance out the distribution of other property during a divorce. Understanding what happens with high-value assets and major financial obligations during property division can be beneficial for those preparing for a high-asset divorce. Mortgages and other financial obligations can be a major stumbling block during the financial negotiation process of divorce if these concerns aren’t managed thoughtfully.