Sometimes, clients will believe that if their name is removed from the title of the home, then they are removed from the liability of the home (i.e. the outstanding mortgages or home equity lines of credit). Unfortunately, this is not the case. Your divorce decree can divide up property and determine the disposition of the home; however, the bank is the entity that ultimately decides who they will go after if someone defaults on the payments. Here are three things to consider when discussing the disposition of the home.
- While your divorce decree may say that your spouse is going to be awarded the house, which means they will be solely responsible for paying the mortgage and any encumbrances on the home, be aware that you might still be on the hook. If your name is on the mortgage, or the home equity line of credit, this can cause you a number of problems. First and foremost, the bank does not care if your divorce decree says that your husband is responsible for the mortgage. If your name is also on the mortgage and the home goes into foreclosure, then the bank will come after you as well. One option to consider when going through the divorce is whether or not your spouse will be able to refinance the mortgage in his or her own name. That way, you can be assured that it won’t be your credit dragged through the mud should he or she default.
- Having an outstanding mortgage will affect your debt-to-income ratio. If your spouse is awarded the home and your name remains on the mortgage, when you go to buy your own property, the outstanding mortgage on your marital home will be considered in your debt-to-income ratio. Why? If your spouse defaults, then the bank will come after you. Unless your income is high enough, a bank may not give you a mortgage if it appears that there might be other mortgage payments to be made that cut into your gross monthly income.
- If you opt to sell the home, someone is going to need to take care of the mortgage, utilities, and taxes until the home sells. Typically, this will be the person who stays in the home up until the date of sale. One problem that might arise is that the spouses cannot agree on how much the home should sell for. One way to deal with this issue is to agree that the parties will hire a realtor or agent and follow all of his or her recommendations. That way, an independent third party will control what is a fair sale price for the home.