Getting divorced means determining who is entitled to the assets of the marriage, which for many couples includes a home. You will need to decide who gets the house, which may also mean determining who is responsible for the mortgage. There are different options for handling a divorce mortgage, and the one you and your future ex-spouse decide on may depend on the specifics of your situation.
A financial advisor can help you create a financial plan for your life after divorce.
What happens to a mortgage if you get divorced?
Divorce does not automatically eliminate the obligation to pay the mortgage debt on a shared marital home. As long as both spouses’ names are on the mortgage loan, they are equally responsible for the debt.
A divorce decree may include instructions on how to handle that mortgage debt once the marriage is officially dissolved. Both parties are legally bound to abide by the terms of the decree.
That is true even if you obtain a quitclaim deed at some point during the divorce proceeding. A quitclaim deed removes one party from the title to a property. However, it does not remove your name from the mortgage.
Who pays the mortgage during a divorce?
Mortgage payments must still be paid as scheduled during a divorce proceeding. Legally, the person whose name is on the mortgage loan is responsible for making those payments. That could be one spouse or both, depending on how the loan is structured.
However, you and your spouse may come to an alternative agreement while you negotiate the details of the divorce. For example, if one spouse is willing to take ownership of the house after the divorce is final, they might agree to take over the mortgage payments themselves.
Doing so does not remove the other spouse’s name from the mortgage (or their responsibility for the debt). But it does ensure that the loan will continue to be repaid until the divorce is final.
What happens if a mortgage goes unpaid while you are working on the fine print of your divorce? If you don’t pay, then:
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Late payments may be reported on both credit histories if each of you is listed on the mortgage
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Both credit scores can be affected due to late payment history
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Late fees and penalties can add up
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Collection calls and letters can begin
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Your lender can start foreclosure proceedings against you if the mortgage is not paid for an extended period of time.
For those reasons, it’s important to keep up with your mortgage payments throughout the divorce process.
Divorce Mortgage Options
Getting divorced can be stressful enough without adding questions about mortgage debt to the mix. However, it is important to address the issues of who gets the house and who is responsible for the mortgage as soon as possible.
That being said, divorcing couples have a few options for managing mortgage debt.
Refinance. Refinancing a mortgage is one way to get a spouse out of a home loan. If you own the house jointly, but only one of you plans to keep the property after the divorce, then refinancing can put the loan in your name only in the future.
You would need to be able to qualify for a new home loan in your name for that to be a viable option. That means meeting the lender’s minimum requirements for credit scores, income, and debt-to-income (DTI) ratios.
In addition to getting a spouse out of the mortgage, refinancing could also be an opportunity to get better loan terms. For example, you may be able to lower your rate or switch to a shorter payment term so you can pay off your loan faster. A cash-out refinance may also allow you to build equity in your home.
Buy out. Home equity can raise additional questions when weighing your mortgage divorce options. If there is substantial equity in the home, the spouse relinquishing their ownership claim may ask for part of the equity in exchange.
In that case, you could do one of two things:
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Refinance into a new mortgage and withdraw cash at closing
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Refinance into a new mortgage, then take out a home equity loan after closing
Either option would mean that you would not have to come up with cash to buy your ex-spouse out of pocket. Again though, you would need to be able to qualify for a refinance loan on your own merits. You should also be able to qualify for a home equity loan or line of credit if you plan to refinance first and then draw down principal to pay your ex-spouse later.
Sell. You and your spouse can agree to sell the house if neither of you wants to keep the property, or if you both cannot qualify for a refinance loan on your own. You can also choose to sell so that the divorce is financially equitable for both parties.
If you sell, the proceeds will first be used to pay the remaining mortgage balance and associated closing costs. At that time, whatever is left will be divided between you.
A 50/50 split might be ideal if you both contributed the same amount financially to buy and maintain the home. However, you can agree to a different division if you are trying to use the proceeds from the sale to balance other assets each of you received in the divorce.
Keep the current mortgage. If you and your ex-spouse are getting an amicable divorce, you may agree to leave the mortgage intact. Both of your names might still be on the loan, but only one of you would make the payments.
That may seem like the easiest solution, but it could be problematic if you’re not keeping up with your mortgage payments. If you don’t pay, both of you could be subject to credit score damage and possibly foreclosure.
Keeping the mortgage in both names can also affect the ability of the spouse who does not keep the house to obtain new loans. If they want to buy a home after divorce, for example, the existing home loan would count toward their debt-to-income ratio, which could affect their ability to qualify.
Loan assumption. Taking on a mortgage after divorce could be an option if your lender allows it. When a lender accepts an assumption, they are allowing one spouse to take responsibility for the mortgage while eliminating the other borrower.
Assuming a mortgage is simpler than refinancing since you keep the same loan instead of getting a new one. In terms of cost, the lender may charge a fee and you may have to pay additional cost to have the property retitled to the lender’s name only.
However, lenders are not required to offer an option for loan assumption. If your lender won’t allow a borrower to assume the mortgage, he or she should consider one of the other solutions listed above. Talking to your financial adviser or divorce lawyer can help you weigh all the possibilities to find the best path.
Who can deduct mortgage interest after divorce?
In addition to deciding who gets the marital home and is responsible for the mortgage, you’ll also need to discuss the mortgage interest deduction. By 2023, couples can deduct interest up to the first $750,000 of mortgage debt, or $375,000 if filing separately.
If you are getting divorced, options for allocating the mortgage interest deduction include:
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dividing it equally
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Allowing one spouse to claim the full deduction, regardless of who gets the home
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Allowing one spouse to claim the full deduction, while allowing the other spouse to claim other deductions (such as state and local property taxes, charitable contributions, etc.)
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Grant one spouse the full deduction while vesting marital property of equal value to the other spouse
Also, keep in mind that other tax rules may apply if you sell the marital home and split the proceeds after a divorce. Homeowners are exempt from capital gains tax on the proceeds of the sale of a home, up to $500,000 for married couples filing jointly and $250,000 for singles and couples filing separately.
Your financial adviser or accountant can guide you on how to handle the tax implications of deducting mortgage interest or minimizing your tax liability when selling a jointly owned home.
Bottom line
Divorce is never pleasant, and deciding what to do with a mortgage can add some inconvenience to the process. Knowing the options and the pros and cons of each can help you find the best possible solution for both parties.
Financial Planning Tips
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Consider talking to your financial advisor about your divorce mortgage options and which one might be right for your situation. SmartAsset’s free tool matches you with up to three vetted financial advisors serving your area, and you can interview your advisor matches at no cost to decide which one is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
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If you’re refinancing a mortgage after divorce, it’s important to shop around to compare the best refinancing lenders. When reviewing home loans, consider the fees you might pay, as well as interest rates and minimum qualification requirements. If you’re interested in a cash-out refinance or home equity loan, it’s also a good idea to figure out how much equity you might be able to access.
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