How Will My Divorce Affect My Mortgage?

Making the decision to end a marriage often means breaking numerous bonds, including financial ones like your mortgage. Many times, a mortgage can seem like one of the biggest obstacles in moving on from a marriage, especially if one party wants to remain in the home or there is no agreement on how the home will be used after the marriage.

At The Law Office of James A. Graham, our experienced divorce attorneys in New Orleans can offer one-on-one insight into what your options are. We have the experience and knowledge to help. Reach out to us for a consultation to discuss those needs now.

What happens to a mortgage after a divorce?

The goal of divorce is to split assets to create a separate way forward. What happens to your mortgage after divorce, then, depends on what you plan to do with the home and what you and your ex agree on for that asset.

Consider several scenarios and how they may impact your financial future:

• Selling the house on the market. You list the home for sale, and a third party buys it. The proceeds from the home’s sale are used to pay off the mortgage. This is the easiest solution forward when neither party wants to maintain the home.
• One spouse wants to live in the home. In this situation, that spouse must “buy” the home from the other. That means they pay a sum of money to the other spouse based on the property’s agreed-upon value. Then, the buyer of the home will need to refinance the mortgage. In doing so, the loan becomes theirs alone. The other spouse’s name is removed from the mortgage.
• One spouse simply moves out. If you are considering nesting as a divorce strategy so that the kids can maintain their current home, then one spouse moves out of the home. They then agree to maintain the mortgage as is, usually with both parents contributing to the mortgage loan.

Any of these scenarios could work for you, but it ultimately comes down to what you want to do with the home and whether you and your ex can agree. In situations where you cannot agree, the court is tasked with making these decisions for you.

What happens when one party wants to buy the home from the other?

In situations where one spouse wants to buy the home from the other, as noted above, they must work through several steps.

The first is determining the value of the home. This may be done through an appraisal or simply an agreed-upon value between the two parties. Then, there are decisions to be made.

In some situations, the buyer of the home will need to go through the refinancing process. That means they must be able to qualify to purchase the home, meaning factors like credit scores and income must be taken into consideration. That means you must be able to show you can afford the home and continue mortgage payments on it.

If the home has equity, you and your ex must come to a decision on how to split that equity. That may take some negotiations. Often, the home’s equity becomes one component of a much larger picture. All assets are typically divided in an equitable fashion to allow for the parties to go their separate ways with the same financial strength. If you want to keep your home, for example, and it has $100,000 worth of equity in it, you could buy out the other party, or they could obtain assets that are worth $100,000 as well, such as retirement funds or a second home.

Considering both the short- and long-term effects of maintaining the home is a good idea. Ask yourself these questions:

• Do you have the financial means to continue to make mortgage payments?
• Will refinancing the home allow you to wrap other debts you may still owe into the new loan, such as credit cards you may be responsible for solely after the divorce?
• Do you have the financial means to make repairs and maintain the home and all utilities without the financial support of the other party?

These are big decisions, which is why it is critical to work closely with your divorce attorney in New Orleans to ensure you know exactly what your situation looks like beyond the divorce.

What happens when you cannot come to an agreement?

A mortgage is a financially binding contract. You cannot simply walk away from the home even if you do not want to own it (this will lead to foreclosure and financial consequences for years to come). When you cannot come to an agreement with the other person, though, the court system is then responsible for making a decision.

Both parties must go to court and explain their side of the situation. The court will then determine the most fair way to divide the asset or the asset’s value. The court aims to look at financial health now but also well into the future. If the court does not believe one party can afford the home, they may require the sale of it.

This process takes time and ultimately lets the Judge make a decision in your case. As a direct result of that, you become less in control over your outcome. We believe that, whenever possible, you should work to reach an agreement with your ex so you remain in control over the outcome of your divorce.

A divorce will affect a mortgage, but it depends on what you and your ex decide upon or what the court agrees on. As a result of this, we encourage you to work with a divorce attorney in New Orleans who can help you navigate the legal options available to you. Contact The Law Office of James A. Graham now to discuss your case with us. Set up a consultation by calling our office or completing our contact form.