Divorce and Mortgages – Exploring Your Options at a Difficult Time

Divorce is a difficult time for anyone – in addition to emotional and family issues, couples going through a separation also need to make numerous financial decisions that may not only affect them but their families, too. A divorce can lead to changes in income for one or both parties; moving can also influence cost of living and other financial considerations. For many, one of the most delicate issues is who gets the house in a divorce settlement. But when it comes to divorce and your mortgage, there’s no “one size fits all” solution – everyone’s situation is different, so it’s important to work with a personal banker, mortgage specialist, lawyer and financial planner. If you’re not sure where to start, that’s okay. Take time to explore your options so you can make the best decision for you and your family.

How to remove your name or your spouse from a mortgage after divorce

If you or your spouse wants to keep your home, one of the easiest ways to achieve this is by transferring the mortgage or refinancing it under one spouse’s name. Transferring a mortgage is common in divorce cases, especially if one spouse is the primary owner of the mortgage but the other spouse will receive the home itself through divorce proceedings or a settlement – that is, a legal agreement that documents the terms of a divorce or separation. Mortgage transfers mean that responsibility for paying the mortgage shifts from one spouse to another. Refinancing a home through one spouse means that they will take on the assumption of the mortgage after the divorce, with new interest rates and payments based on their credit score, income and other factors.

Mortgage transfers or refinancing are arguably some of the simplest ways of resolving who gets the house in a divorce. However, that doesn’t mean that this is the right solution for every couple that’s going through a divorce. Before committing to either of these options, be sure to discuss the following with your personal banker or financial planner:

  • Income: If you’re thinking of transferring or refinancing a mortgage in your name, make sure you can afford the monthly payments, fees and additional costs.
  • Credit: Your credit score is an important factor in determining your interest rate after refinancing, or even if you’re able to refinance at all.
  • Home Equity: If your home’s value is lower than it was when you first bought it, you may not have enough equity to refinance your home. Your bank’s mortgage specialist may help you determine if your home has enough equity and could offer additional options if you’re unable to refinance.

Sell your home during a divorce and pay off the mortgage

If neither of you want to keep your current home or take on the assumption of the mortgage after your divorce, it may be best to sell your home instead. While you would still have to make mortgage payments in the short term, selling your house means that neither you nor your spouse would be responsible for a mortgage after your divorce. This arrangement does require compromise, however. Both you and your spouse would have to be willing to sell the home, and both of you would need to agree to split the proceeds. Your lawyer may advise you to commit to these agreements in writing as part of your divorce settlement. Also, keep the following points in mind before choosing this option:

  • Home Equity: As mentioned above, your home’s value may be a deciding factor on whether or not to sell. If your home’s value is too low, you may be unable to sell your home for enough to cover the remaining mortgage or other costs.
  • Family: Selling your home during a divorce means that both parties have to move. If you have children or other family members living with you, consider how this move may affect them in terms of school and other services or activities.

Keep your home – and your mortgage

Though it may seem counterintuitive, some divorcing couples come to the conclusion that it’s best to keep their home – and their mortgage – intact. If you and your spouse applied jointly, this means that both of your names will remain on the mortgage, and both of you will be responsible for making sure payments are made on time. This also means that late payments or other issues could affect both of your credit scores. Your lawyer will probably advise you to include language in your divorce settlement that outlines how payments and residence will be handled by both parties. These other factors can also help you decide whether or not keeping the home is best for your situation:

  • Amicable separation: Keeping dual ownership of a home requires a high level of trust from both parties. It’s important that you and your spouse work together and compromise to ensure that this arrangement is fair for both of you. Keep in mind that circumstances can change, and promises can be broken. It’s important to get any sort of agreement in writing in case you need to verify, amend, or renegotiate.
  • Income: While each divorce agreement is different, many couples who decide to keep their home agree to a split payment arrangement or have one spouse pay the mortgage as part of alimony. It’s important to make sure that you can make these payments on your own before agreeing to keep the home.
  • Legal arrangements: If you and your spouse decide to keep your home, it’s important that you relay this information to your lawyers as soon as possible. They’ll be able to review the terms of an agreement to make sure it’s fair for both parties. Alternately, they may advise against such an agreement based on legal or financial concerns.

Going through a divorce can be a challenging experience for anyone. That’s why it’s important to work with your legal and financial teams to find a solution that works for everyone. It may take some time, but you’ll be one step closer to moving forward after this difficult chapter. 

Santander Bank does not provide financial, tax or legal advice and the information contained in this article does not constitute tax, legal or financial advice. Santander Bank does not make any claims, promises or guarantees about the accuracy, completeness, or adequacy of the information contained in this article. Readers should consult their own attorneys or other tax advisors regarding any financial strategies mentioned in this article. These materials are for informational purposes only and do not necessarily reflect the views or endorsement of Santander Bank.
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