Divorce is a complex process, and one of the most significant financial decisions you'll face is whether to keep the mortgage on the family home. This decision involves careful consideration of both emotional and financial factors. On one hand, keeping the home can provide stability and continuity for you and your children. On the other hand, taking on the full responsibility of a mortgage on a single income can be financially burdensome.
It's crucial to evaluate your ability to afford the payments, potential refinancing options, and the long-term implications on your financial health. Before making this important decision, it's wise to consult with an experienced divorce attorney who can help you navigate the intricacies of property division and mortgage obligations.
At Tommalieh Law, our divorce lawyers in Chicago guide clients through the financial complexities of this process, ensuring that you make informed choices that best suit your future.
Call us at (708) 232-0017 to schedule a free consultation and learn how we can assist you in making the right decisions for your financial well-being during and after your divorce.
Understand How a Mortgage Affects a Divorce
When you purchase a home when you are married, you typically sign with joint mortgage responsibility. This means that both of you are equally responsible for the mortgage payments. This remains the case even if it's only one spouse who is making the monthly payments.
If you are looking into getting a divorce, it's important to understand mortgage terms and equity. You should make sure to read over the terms of your mortgage and figure out if there is a sole borrower or if it is considered a joint debt. If it is a joint obligation according to the contract, then it will need to be part of the divorce settlement process.
Divorce decrees will typically state what will be done with the marital home. The divorce process will usually split the equity between the two spouses. You can do this by selling the house and splitting the money, or having one spouse keep the house and paying half of the value to the other.
Pros and Cons of Keeping the Mortgage
When you are deciding whether or not to keep the mortgage, there are some pros and cons to consider.
Pros:
- Stability and continuity for children
- Emotional attachment to the family home
- Potential for future financial appreciation
Cons:
- Financial burden and affordability concerns
- Challenges in refinancing and qualifying for the mortgage alone
- Risk of financial strain and missed payments
As you can see, this is a difficult process and there is no one perfect solution. You will need to carefully weigh all of your divorce mortgage options and consider which factors are most important for you and your family.
Options for Handling the Mortgage in a Divorce
As you're going into a divorce, there are a couple of different ways to handle mortgage loans that you should be aware of.
Selling the Home
First and foremost, you can choose to do what many couples do and sell the home. When you sell the home, you get to split the proceeds from the sale, leaving both of you with a lump sum of cash that can go toward paying expenses.
One potential downside of doing this is that in some cases, you will have to pay taxes on the money that you earn. You are typically able to exempt up to $250,000 of it from taxes, but anything beyond that will need taxes to be paid.
If you choose to sell the home, you will need to find alternative housing as well. This can be difficult to do depending on the area you live in and can create additional stress in an already difficult time. Based on your financial obligations, you may also have difficulty finding a rental property that will accept your application.
One Spouse Keeps the Home
Another option is to allow one spouse to keep the home. To do this you will need to refinance the original mortgage in one spouse's name with the loan company.
As for the divorce aspect of things, the spouse who keeps the home will have to buy out the other spouse's equity in the home. This helps to ensure that one spouse does not walk away from the marriage with significantly more than the other.
This can be complicated to work out with one person having to come up with quite a bit of money and the other living without a home. However, with an experienced divorce attorney, this is also a plausible method.
Continued Co-Ownership
In some cases, you and your spouse may want to continue with co-ownership. This means that both of you will remain on the mortgage and continue paying it as a couple, even though you are getting a divorce.
If you choose to go this route, you will want to make sure to outline the terms of the agreement in the divorce agreement. This will help to ensure that there are no issues down the line and give you a legal document to refer back to. Examples of things you can include are plans for selling or refinancing and who will live in the home post-divorce.
Learn More: How is Property Split in a Divorce?
The benefit of this is that you can wait to sell the home until it has more value and give one or both people a place to live during the divorce itself.
However, there are also some risks. If one person decides that they are no longer going to cooperate with the agreement, they can make things very difficult for the other person, especially if the current mortgage payments are too high for one person to pay.
Factors to Consider Before Making a Decision
Before you make your final decision regarding your joint mortgage, there are some factors you should consider:
- Financial stability and income of each spouse
- Consider future child support payments
- Credit history and ability to refinance
- Late payments make it much more difficult to refinance
- Long-term housing plans and needs
- Impact on children and their schooling
- Emotional readiness to move on from the family home
Based on these factors, you may decide that selling the house is the right decision, or you may decide that you or your spouse should be the one to take on the mortgage loans. If you or your spouse is capable of paying for this, it can be a great way of reducing the turmoil associated with divorce.
Legal and Financial Implications
Before you make your decision, you should also consider the legal and financial implications of the mortgage debt. To do this, you should consult with a divorce attorney and a financial advisor. They will be able to look at your current mortgage rates, credit score, and other financial factors and advise you on what to do. You will also need to think about the tax considerations and potential deductions.
Related: How Much Does a Divorce Cost?
Even choosing to sell the home has financial implications that you and your spouse, along with your divorce lawyers, will need to consider. You will have to pay closing costs and consider the tax implications of the money that you would earn from the sale of the home.
An experienced divorce lawyer will understand the legal process of transferring the mortgage and guide you through it.
Steps to Take if You Decide to Keep the Mortgage
If you decide to keep the mortgage, there are some steps you will need to take.
First, you need to evaluate your financial situation. Take your credit cards and look at your credit score, check your joint accounts, and speak with a financial advisor to come up with a plan.
After consulting with your financial advisor, you should contact your mortgage lender to see what your refinance options are. By getting a mortgage refinance, you are getting a new loan that is appropriate to your financial situation and will only have your name on it.
Outside of the mortgage, you will also need to transfer the real estate title to your name. This is typically done by writing a deed that will transfer the ownership of the home from both of you to just one spouse.
After both documents have been updated, you will need to update your estate plan. If your estate plan mentions marital estate, you will need to change that to match your updated situation. If you have become the sole owner of the marital property, you will need to update that.
Need Help With a Dorce? Call Tommalieh
In conclusion, deciding whether or not to keep your mortgage in divorce is a big decision. Many factors need to be considered including your and your spouse's income ratio, your credit report, if you can afford the monthly mortgage payments, and if you can afford a rental property.
Outside of that, you will also want to consider where you plan on living and if keeping the house would even be a viable option in terms of what you want for your family.
Seeking experienced legal counsel will help you explore all of your options and draft the best possible divorce settlement in your situation.
If you are going through a divorce and need legal advice, contact us at Tommalieh Law. Call our Chicago family attorneys at (708) 232-0017 to schedule a free consultation today.
