Throughout the lifetime of any marriage, many couples accumulate different types of debts and assets. And, if a divorce occurs, they are simply divided up between each party in an equitable way. The divorce decree is then signed, parties understand their rights and obligations and they go on their separate ways. However, this isn’t exactly as easy as it sounds.
Despite the divorce decree dictating each party’s assumptions or responsibilities, there are still problems that could affect one or the other down the line.
A common example involves a mortgage.
Decisions Regarding the Family Home
One of the biggest issues many divorcing couples need to resolve is in regards to the family home.
In a perfect world, the house is out up for sale, quickly sold and the equity is split between the parties. However, many couples in the last few years and even today simply cannot sell their homes. Many are underwater or have been unable to compete in a saturated market.
Some couples, as a solution, will agree to allow one party to take over possession and responsibility of the residence, mortgage, taxes and insurance. The responsibility is thereafter stipulated in the divorce decree. But this can become problematic.
Mortgage Decrees and Mortgage Notes
Even though the divorce decree stipulates that one party is taking responsibility for everything related to the family home, both parties are still obligated under the mortgage if both names remain listed on the property’s mortgage note. This is because a divorce decree is a separate contract from a mortgage and lenders are not bound by divorce judgments.
So, if the party taking responsibility of the home fails to make a payment in the future or defaults altogether, the mortgage lender can still come after the other party for the loan balance.
In addition, the other party’s credit score is likely to take a hit as a result. It could also hinder the ability to obtain financing for a home in the future.
Even when parties feel they are backed into a corner because they have an underwater mortgage or just can’t sell their house, there are still solutions available, such as refinancing or assumption, that will not come back to haunt either party.
Refinancing is one way to free a party from all responsibility of a home. By refinancing, the mortgage can be put under just one name.
A program known as the Homes Affordable refinance Program, or HARP, is available for homeowners who wish to refinance, but remain underwater in their current mortgage.
Although not as common, an assumption is another option for divorcing couples wishing to release one party from the mortgage obligation. In this situation, mortgage lenders will allow one party to “assume” the loan and remove the other party from the note.
This option isn’t available in all circumstances, however, and many banks will likely require documentation and, in some cases, a copy of the divorce decree if an assumption is accepted.
Speaking With an Attorney
Before any decisions or actions are taken regarding the family home, the best course of action is to first contact a knowledgeable divorce attorney. A lawyer can offer guidance on the law and advice on the best course of action as it pertains to individual circumstances.