by Christy Bieber | Published on Aug. 3, 2021
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Make sure you address your mortgage when you end your marriage.
Many couples purchase homes together. That can become a serious problem when a divorce occurs.
Not only does the couple need to decide what to do with the house, but a choice also has to be made about how to handle the mortgage. And that can be more complicated than you might think.
Here's what you should know about your options for dealing with your shared mortgage debt after divorce.
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When you're deciding what to do about your mortgage, there's a serious legal issue you need to consider.
If you have a joint mortgage you applied for with your spouse, your lender will consider that loan a shared legal responsibility. In other words, the lender will expect both parties to be responsible for paying off the mortgage.
That's true no matter what your divorce decree says. So if your divorce settlement says that your spouse is solely responsible for repaying the mortgage, that ruling doesn't affect the obligation that you have to your lender.
If your ex stops paying, you will have late payments listed on your credit history. If the house gets foreclosed on, that will be listed on your credit history. And if there's a remaining balance due after foreclosure and your state allows your lender to try to collect it, the lender could pursue a legal claim against you.
Because of this, you will need to think carefully about what to do with your mortgage when your marriage ends.
The best way to protect your legal interests when you divorce is to have the person who will be responsible for paying the mortgage refinance the loan solely into their own name. So if your ex is supposed to keep making payments, they should try to get a new home loan in their name only.
Sometimes, this can be a challenge. That's because it may be difficult to qualify for a home loan with one income, rather than the joint income you used to have pre-divorce. But it's the only surefire way for the other spouse to protect their credit and finances in the future.
If you can't refinance a home loan into the name of the person responsible, then it may be in the best interests of both parties to sell the home and pay off the mortgage. While this may not seem ideal, it does mean that you and your ex won't have a joint debt that you're stuck with for decades.
As a last resort, if your ex is deemed responsible for making payments but you remain on the mortgage loan, try to work a condition into your divorce settlement that requires them to try to refinance into their own name ASAP.
And be sure to keep tabs on the payoff progress so if your ex starts missing payments, you can react as quickly as possible -- which could mean going to court to get an enforcement order and even temporarily making payments yourself to avoid damaged credit.
It may not be fun to think about these issues, but making the right choices about your mortgage in a divorce is essential to protect your financial future.
Chances are, interest rates won't stay put at multi-decade lows for much longer. That's why taking action today is crucial, whether you're wanting to refinance and cut your mortgage payment or you're ready to pull the trigger on a new home purchase.
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