Divorce and Eliminating a Joint Mortgage

If you are going through the process of divorce and previously signed for a joint mortgage with your spouse, this article will give you the information needed to remove your liability on the joint mortgage and show you how to protect your credit. Even if your spouse is legally assigned ownership of the martial house, if they fail to make the mortgage payments on time, your credit will be negatively affected and it may prevent you from obtaining a mortgage loan in the future. Also, the division of assets and liabilities in the separation agreement will likely impact your income and debt ratio, thereby affecting your ability to qualify for mortgage financing.

If you are going through a divorce, there are two main options to eliminate your liability on a joint mortgage. They include: selling the property and paying off the mortgage or obtaining court approval in the separation agreement for the assignment of the mortgage to one of the spouses. There are potential pitfalls with this option, because assigning the mortgage and ownership of the property to one of the spouses could lead to possible credit issues in the future for the other spouse. The spouse assigned ownership of the house and responsibility for the mortgage will likely be required to refinance the mortgage within a set period of time, thereby paying off the joint mortgage and establishing a new mortgage just in their name. If late payments occur prior to the refinance of the house, the other spouse’s credit will be affected. In addition, the other spouse will be required to sign a quit claim deed, thereby giving their ownership in the property to the spouse keeping the property. The quit claim deed does not remove liability, just ownership in the property.

The separation agreement and divorce decree may also impact your ability to obtain a new mortgage. Mortgage lenders will require and review your separation agreement and divorce decree to verify which party is financially responsible for marital debts. These may include: credit cards, installment loans, auto loans, and student loans. Your mortgage lender should omit the monthly payment(s) on debts that were assigned to the other spouse, but any derogatory credit will affect your credit scores. They will also account for the division of assets in the divorce decree and separation agreement. These include: bank and retirement accounts, real property (marital house, rental property, and vacant land), and automobiles and motorcycles. Either party to the divorce can be assigned debt obligations or granted additional income, such as: spousal support or child support (these are usually disclosed in the separation agreement).

Depending on the mortgage type used to finance the marital house, you may also have the option of one spouse assuming the mortgage. FHA mortgages allow one party to assume the mortgage, thereby releasing the liability of the other spouse, unfortunately conventional financing usually does not allow for assumptions. You should contact your mortgage company regarding this option.

Prior to signing your separation agreement or divorce decree it is important to understanding the ramification of court assignment of the marital house and mortgage. Quit claiming ownership of the marital dwelling to one spouse prior to an assumption or refinance of the mortgage into the other spouse’s name may lead to severe credit issues for both parties. Take the time and thoroughly discuss your concerns with your attorney, so they can find the best solution to minimize possible negative ramifications in the future.