Deciding what happens to the family home is a major divorce issue. This, and other property division issues, may be especially difficult if the couple had a bitter breakup. There are many mortgage options for divorcing couples which depend on financing and titling of the property, whether one spouse want to stay in the home, and their home equity and credit rating.
Selling or staying
The couple must decide who keeps their home after divorce. Both parties benefit financially and emotionally if they cooperate on this and other matters involving their home. Once the couple agrees on who keeps the home, they must assure that the recipient can afford to keep it in the long-term.
Refinancing
Couples may agree to refinance a joint mortgage into one name after the divorce so only spouse is responsible for future payments. But it is important to remove the spouse who is not paying for the home from the title, so they do not reap any benefit from the sale of or equity in the home. Quitclaim deeds are typically used to remove a divorced spouse’s name from the title.
Spouses who refinance, however, can only use their own income and credit to qualify for a new mortgage. Spousal support may be used to qualify for refinancing if it is received for at least three years. The spouse keeping the house may also apply for a cash-out refinance if the couple has equity in the house.
Sale
Spouses can agree to sell their home and divide the proceeds if, for example, refinancing is impractical. Both spouses may benefit by selling their home, paying off the mortgage, dividing the profits and starting anew. Selling the home may resolve disputes over the home’s worth.
Spouses who want to keep their home and lack equity to do a cash-out refinance or payoff their spouse’s share may consider a HELOC or home equity loan.
Considerations
Couples must consider selling or refinancing costs including include repairs or staging and real property transfer and capital gains taxes. An appraisal may be needed to determine the home’s real value and the couple’s equity.
Capital gains taxes, which are progressive, can be important. Spouses may each deduct $250,000 of gain from their taxable income for the sale of their primary residence they lived in for at least two of the last five years before the sale.
Couples should also continue to pay all off their bills through their divorce to protect their credit. They should close their joint accounts and establish individual accounts.
An attorney can furnish you with options on property division issues. They can help assure that the divorce decree is fair and reasonable.
