Have a Joint Mortgage and Getting Divorced? This Is Your Best Move

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Don't let your joint mortgage debt affect your finances after your marriage is over.

Many married couples own a home together, and it's common to have a joint mortgage that both spouses applied for together. Unfortunately, this can create a problem when the couple divorces, especially if one of the two spouses plans to keep the house.

Here's what the issue is -- and the best course of action to resolve it.

The trouble with a joint mortgage in divorce

If a couple divorces and has a shared home, they'll need to decide what to do with it. If they sell it, they won't have to worry about their joint mortgage. They can repay the loan with the proceeds from the home sale and split up any remaining money between the two of them as part of their divorce settlement agreement.

But if one spouse keeps the house and there's a joint mortgage, issues can arise. See, the divorce decree may specify who is responsible for paying the home loan. But, in the eyes of the law and the eyes of the lender, both spouses took out the loan, so they are both equally responsible for repaying it.

Now, say for example that your spouse keeps the house and the divorce agreement says they have to make the remaining mortgage payments. Despite that, the mortgage will stay on your credit history. That could be a problem if you want to buy another home or take out other kinds of loans since the mortgage payment will count as part of your debt-to-income ratio.

And that's not even the biggest potential problem you'd face down the line. If your spouse stopped making payments, the mortgage lender would still view you as legally responsible. The record of late payments could show up on your credit report, and if your spouse defaulted and the home was foreclosed on, that would show up on your credit record. Both late payments and foreclosure can have a devastating impact on your credit score and future ability to borrow.

If the state where the mortgage is located allows lenders to collect any unpaid balance, you could also incur costs if the home doesn't sell for enough to fully repay the lender after foreclosure. The lender could try to collect the difference, which means your assets could be at risk.

While you could go back to court to try to enforce your settlement and get money from your spouse to address nonpayment, this wouldn't erase the negative consequences associated with damaged credit. And if your spouse couldn't come up with the cash, you'd be largely out of luck since you'd have no way to collect.

The best way forward

Ultimately, the best and only way to avoid these downsides is for the spouse who is responsible for the mortgage payments to refinance into their name only. If they secure a new mortgage refinance loan in their name only, it can be used to pay off your joint loan. You'll no longer have legal responsibility for the home loan and can move on with your life without worrying about your unpaid mortgage balance coming back to haunt you.

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