What Are Your Options When You Split Up?
A sad reality about the state of matrimony in the modern day is that approximately 50 percent of them end in divorce, and in addition to the emotional turmoil this can put two partners through, there’s also the anguish of being forced to divide the existing assets and debt that they once shared. And the most complicated asset to sort out between a split-up couple is almost always a mortgage loan.
Often, when a couple divorces, they find themselves with no other choice but to sell off their home, pay off their loans, and then divide the money that is left over; this normally happens when neither of the members of the marriage are able to individually afford to maintain their home and pay the mortgage. However, sometimes one partner will agree to let the other retain the property, which can be done through either transferring the deed, reassigning or refinancing the mortgage.
One thing all of these choices share in common is that none of them are easy to accomplish, especially if there is a great deal of animosity between the two people who are divorcing. However, if the split-up is amicable and the soon-to-be former husband and wife are willing to cooperate, the process can be significantly smoother.
If one member of the couple has the financial means to keep the property, there are two immediate concerns to address. The first step that must be taken – after a divorce agreement has been drafted and submitted for court approval, that is, which outlines how assets will be split – is that the property will need to be retitled, which involves one partner giving up an interest in the real estate and transferring it to the other partner via a quitclaim deed.
The next step involves either assigning the mortgage to the partner assuming the ownership of the property or refinancing.
Assigning the mortgage involves removing the spouse from the mortgage who is relinquishing ownership of the property; this is known as a mortgage assumption. This route can be difficult at times, however, as lenders aren’t required to grant assumptions, and often will want evidence that the remaining borrower can repay the loan on their own. There are usually transfer fees involved as well.
The second option – which typically works better – is to refinance the loan and then take a new one out in the name of the spouse that is retaining ownership of the property.
An example of this would involve a couple getting divorced and one member keeping the house, which has been appraised at $300,000. The divorce agreement entitles the spouse relinquishing the property to receive half its value in cash after the outstanding balance of the mortgage has been subtracted.
If the home has an unpaid balance of $100,000, then the spouse relinquishing the properties is entitled to $100,000 of its equity. Therefore, the spouse retaining the property would need to get a new mortgage for $200,000; they would use $100,000 to pay off the balance of the original mortgage and the other $100,000 to pay the their spouse their share of the sale.
In the end, they both would receive $100,000- one in cash, the other in home equity.
However, there is one disadvantage to refinancing in that the partner retaining the property would need to take out a new 15 or 30-year mortgage, as opposed to whatever time was remaining on their original home loan.
Getting divorced is always a horrible situation for everyone involved, almost without exception. But when both spouses are on the same page when it comes to the division of their shared assets and debt – especially when it comes to their home – that rough situation can be smoothed out a little bit, enabling both parties to move on with their lives.
