Previously, we began looking at the topic of dividing the family home in divorce. As we noted, there are several potential outcomes when it comes to division of the family home. One is selling the property. Another is to let one party keep the property. When a party seeks to keep the family home, though, it is important to look at their financial circumstances beforehand to determine how feasible that is.
In some cases, the party seeking to take the family home may have enough income to handle the mortgage on their own, and perhaps even to buy out their spouse, but in many cases this is not possible. In such cases, it may be possible to obtain a refinance of the mortgage, which is smart even for even when the party taking the home could afford not to do so, since it allows the non-taking spouse to get off the mortgage note. Refinancing can also allow the taking spouse to pay out the portion of equity due to the non-taking spouse.
In certain circumstances, refinancing is not possible, whether because the taking spouse doesn’t have enough income, has poor credit, or doesn’t have sufficient equity to refinance. In the latter circumstance, there may still be options for refinancing, despite low equity, and it is important for the spouse seeking to take the home to seek guidance pursuing these options.
In cases where it is not desirable to sell and a refinance cannot be obtained, couples may agree to both remain on the mortgage for some time after divorce to buy the taking spouse time to qualify for refinance. With this avenue, there is the risk of default, which should be a concern for the non-taking spouse. In the event of default, the lender is not going to care what agreement the couple may have struck in their divorce case–they are both going to be sued since the lender wants to ensure it is able to collect the money. In addition, even if there is no default, remaining on the mortgage can impact the non-taking spouse’s credit, and this is worth considering.
Ideally, a spouse looking to take on the shared family home should know whether they qualify for a loan, and if so, how much of a loan, before entering into divorce negotiations, as this can impact the negotiations themselves. Having the guidance of an experienced attorney to address the legal aspects of the negotiations is, of course, indispensible.