Post-Divorce Mortgage Advice

When your marriage ends, this doesn’t mean your mortgage has to. Several couples are interested in keeping the family home after divorce for emotional and financial reasons. While it may take some negotiating, it is best when individuals work together, not against each other. Couples don’t prepare for a divorce when they are happily buying a home, but since half of marriages end in divorce today, it is wise to understand the financial results. Whatever decision you choose, you will want to ensure that it does not cause you or your spouse any financial setbacks in the future. 

Current Mortgage vs. Joint Mortgage

A mortgage doesn’t say a lot about what is inside the home; however, the right mortgage will help you keep it. As a married couple, keeping up with the mortgage with two incomes probably never gave you much thought. If you plan to keep the current mortgage as a single earner, it is wise to thoroughly analyze your financial situation. Although many lenders do not allow loan assumption, you may be interested in keeping your current mortgage without changing any of the terms, as a single earner.

This would mean that the same terms still apply to the individual on the mortgage as they did for the couple. If this is not possible, but you want to keep the home, a joint mortgage is another option. In a joint mortgage, your ex-spouse would continue to help you make payments, even after the divorce. This can be a helpful solution for example when keeping the family home for the children, but you will want to ensure that your ex-spouse can support their share and not risk your credit.

Refinancing

Refinancing is a common solution post-divorce. It allows an individual to keep the home while typically changing the terms to better suit their income, and only having one individual on the loan. This means relying on one credit score and one income only. A co-signer is an option, but that person is now responsible for making the payments if you fail to. The mortgage is important, but now is a good time to ask your ex-spouse to transfer your name only to the title as well. Otherwise your ex-spouse will own part of the house that only you pay the mortgage on.

Selling the Home

Deciding to stay or sell is not easy, but sometimes selling the home can be the only option. If neither individual can afford the mortgage, selling the home might be for the best. In this situation, a divorce agreement could create a strict timeframe in which the house must be sold. If it is not, net proceeds will be split evenly. Selling the home isn’t all bad. Paying off the mortgage, selling the home, and collecting their shares, allows ex-spouses to start fresh. If you choose to keep the home, hopefully the lender allows one name to be removed. This can be tricky if the lender does not agree to move them, making it difficult to qualify for another property.

Tax Implications

The last thing you need to worry about during a divorce is taxes, but that doesn’t mean they won’t be applied. A capital gains tax is the tax on profits from property sales, if the amount received is more than a certain amount. The IRS declares that if you have lived in your primary residence for at least two of the five years before the sale was made, you can exclude the first $250,000 of profit from your taxable income. Another tax issue is The Tax Cuts and Job Act. According to this act, the individual with the higher income who pays alimony, will lose the old alimony deduction and is now required to pay taxes on it. The other spouse receiving alimony, won’t have to pay taxes on it.

The emotional turmoil of divorce is often increased due to financial burdens. Handling the finances on your own may seem impossible, but there is hope. Having a good divorce lawyer, financial planner, and mortgage broker are a few ways to lessen the blow. You will feel more confident with the help of professionals by your side. Therapists and psychologists are also helpful to manage the emotional stress during divorce. After divorce, your house may be a different home, but there will be peace.