In many divorces, the marital home is one of the most valuable assets of the parties. There are three general possibilities in what to do with the marital home in a divorce:
1.) Spouse A keeps the house;
2.) Spouse B keeps the house; or
3.) The parties sell the house.
In scenarios 1 and 2 above, the spouse not getting the martial home generally has to execute a deed after the divorce is over that awards their interest in the house to the other spouse. The transfer usually takes place through a Quit Claim Deed.
The other issue is that unless the marital home is paid-off (which is often not the case), there is a mortgage. When a married couple owns a home together, the mortgage is almost always in both their names. Many wonder how important it is to have their name removed from the mortgage if they are not the party receiving the martial home. The truth is that this is almost always important for the party who is not getting the home.
Removing the other spouse’s name can typically be accomplished through the spouse who is keeping the house refinancing the mortgage remove the other spouse’s name. If the spouse who is keeping the house as excellent credit, they might be able to assume the mortgage in their sole name. An assumption agreement is how one spouse can remove the other spouse’s name and not have to pay refinance costs and fees.
Some parties, however, do not account for the mortgage in their divorce settlement paperwork at all. Not addressing the mortgage can occur where the parties do not engage an attorney or the attorney does not regularly practice in the area of family law.
This can result in a scenario where the spouse not keeping the house discovers many years later that their name is still on the mortgage. They often discover this when they want to buy a house, vehicle or other asset on their own.
They then are informed that they income to debt ratio is too high. This may result in them not being able to get a loan at all. Or, in some cases, it might result in a higher interest rate than they would have been able to obtain.
In a worse situation, the spouse keeping the house may not make all the mortgage payments. When the party who has the house does not pay the mortgage, it can hurt the other spouse’s credit rating or foreclosure proceedings (where the spouse who did not get the house becomes part of those proceedings).
For the above reasons, it often makes sense to talk to a lawyer about setting forth a deadline in the settlement paperwork by which the party keeping the house must remove the other spouse through a refinance or assumption. Otherwise, they have to sell the house. This protects the spouse who is not keeping the marital home.