Divorce and Your Mortgage: Options for Splitting a Home Loan

When divorcing with a mortgage, your main options are selling the home and splitting proceeds, having one spouse refinance to remove the other, or one spouse assuming the loan (rare). A divorce decree doesn’t remove you from the mortgage—only refinancing or payoff does. Until the mortgage is resolved, both spouses remain liable. Protect your credit by ensuring payments are made regardless of who the divorce agreement says is responsible.

Your Options During Divorce

Option 1: Sell the Home

How it works:

• List and sell the property
• Pay off mortgage from proceeds
• Split remaining equity per divorce agreement
• Both parties released from loan

Best when:

• Neither spouse can afford home alone
• Both want a clean break
• Equity needs to be split
• Home won’t sell underwater

Considerations:

• Selling costs (6-10% of sale price)
• Capital gains (usually excluded for primary residence)
• Timing with divorce proceedings
• Market conditions

Option 2: Refinance

How it works:

• Keeping spouse refinances into their name alone
• Pays off existing joint mortgage
• Other spouse removed from title and loan
• May need to buy out departing spouse’s equity

Best when:

• One spouse can qualify alone
• One spouse wants to keep the home
• Equity can be managed (bought out or traded)

Requirements:

• Keeping spouse must qualify for new mortgage independently
• Income and credit must support the loan
• May need appraisal for equity determination

Option 3: Loan Assumption

How it works:

• One spouse formally assumes the existing loan
• Other spouse is released by lender
• Loan terms remain the same

Best when:

• Loan is assumable (FHA, VA, USDA)
• Current rate is favorable
• Assuming spouse can qualify

Challenges:

• Most conventional loans aren’t assumable
• Lender must approve assumption
• Assuming spouse must qualify
• Equity still needs to be addressed

Option 4: Keep Joint Mortgage

How it works:

• Mortgage stays in both names
• One spouse lives there and pays
• Other spouse transfers deed (or doesn’t)

Risks:

• Both remain liable
• If payments missed, both credits damaged
• Departing spouse’s DTI affected
• Difficult to buy new home

When considered:

• Can’t refinance now
• Temporary arrangement
• Children’s stability concerns

The Divorce Decree Doesn’t Release You

Why This Matters

Common misconception: “The divorce says they’re responsible, so I’m off the hook.”

Reality: The mortgage lender isn’t bound by your divorce decree. If both names are on the loan, both remain liable until the loan is paid off or refinanced.

Protecting Yourself

If your ex is supposed to pay:

• Insist on refinance within specific timeframe
• Include consequences in divorce agreement
• Monitor payment status
• Have contingency plan

Set up notifications:

• Add yourself to payment alerts
• Check credit report regularly
• Know if payments are missed immediately

Refinancing to Remove a Spouse

Qualifying Alone

Requirements:

• Income sufficient for the payment
• Credit score meets loan requirements
• DTI within guidelines
• May need to document alimony/child support

Using alimony/child support:

• Must be court-ordered
• Must show 6+ months of receipt
• Must continue for 3+ years
• Lender counts at face value or discounted

Buying Out Equity

If the home has equity, departing spouse is owed their share.

Example:

• Home value: $450,000
• Mortgage balance: $300,000
• Equity: $150,000
• Each spouse’s share: $75,000

Options to buy out:

• Cash payment
• Cash-out refinance to fund buyout
• Trade other assets (retirement, other property)
• Offset against other divorce obligations

Timing Considerations

Refinance before divorce finalized:

• May still use joint income
• Could be easier to qualify
• Must trust ex-spouse to cooperate

Refinance after divorce:

• Single income only
• May use support income (if stable)
• Cleaner separation of assets

Selling the Home in Divorce

Process

1. Agree to sell (or court orders sale)
2. Select real estate agent
3. List and market property
4. Accept offer and close
5. Pay off mortgage
6. Split proceeds per agreement

Splitting Proceeds

Common approaches:

• 50/50 split of net equity
• Offset based on other assets
• One party gets more for various reasons (contributed down payment, etc.)

Calculate net proceeds:

• Sale price
• Minus mortgage payoff
• Minus closing costs
• Minus agent commission
• Equals proceeds to split

If Home Is Underwater

When mortgage exceeds home value:

Options:

• Negotiate short sale (lender approval needed)
• One party pays difference at closing
• Bring cash to cover shortfall
• Keep home until value recovers

Dividing the debt:

• Both may be responsible for shortfall
• One party may take on obligation
• Include in overall asset/debt division

Protecting Your Credit

Why Both Credits Are at Risk

Until the mortgage is resolved:

• Payment history affects both
• Late payments damage both
• Foreclosure would impact both
• Debt counts in both DTIs

Steps to Protect Yourself

Stay involved:

• Monitor the account
• Set up payment alerts
• Check credit reports monthly

Make payments if necessary:

• Better to pay than damage credit
• Seek reimbursement through court
• Document all payments made

Get off the loan:

• Push for refinance or sale
• Set timeline in divorce agreement
• Include enforcement provisions

Special Situations

One Spouse Contributed More

Considerations:

• Who made the down payment
• Who paid mortgage during marriage
• Whose income qualified for loan
• State law (community property vs equitable distribution)

May affect:

• Equity split
• Buyout amount
• Responsibility for debt

Home Was Owned Before Marriage

Typically:

• Original owner has stronger claim
• Appreciation during marriage may be split
• Depends on state law
• Prenup may govern

Military Divorce (VA Loan)

Special considerations:

• VA entitlement issues
• Assumption possibilities
• Servicemembers Civil Relief Act
• VA-specific guidance available

Both Want the Home

Resolution options:

• Negotiate (one buys out other)
• Mediation
• Court decision
• Sell and neither keeps

Working With Professionals

Who You Need

Divorce attorney:

• Protects your legal interests
• Drafts enforceable agreements
• Understands property division

Real estate attorney:

• Title and deed issues
• Contract review
• Closing representation

Mortgage professional:

• Refinance qualification
• Options analysis
• Timing advice

Appraiser:

• Determines fair market value
• Important for equity calculations
• May need agreed-upon appraiser

Financial advisor:

• Overall picture
• Tax implications
• Long-term planning

Timeline Expectations

Typical Divorce Home Resolution

Stage	Timeframe
Decide approach	During divorce
Appraisal/valuation	1-2 weeks
List home (if selling)	Variable
Refinance application	30-45 days
Assumption (if applicable)	45-90 days
Full resolution	Weeks to months

Include Deadlines in Decree

Specify:

• Deadline to refinance (e.g., 90 days after divorce)
• What happens if deadline missed
• Who makes payments meanwhile
• Consequences for non-compliance

Tax Implications

Capital Gains

Exclusion available:

• $250,000 single / $500,000 married
• If lived there 2 of past 5 years
• May need to coordinate timing with divorce

Planning:

• Sell while still married for higher exclusion
• Or ensure both meet residency requirement
• Consult tax professional

Mortgage Interest Deduction

During divorce:

• Whoever pays can deduct
• Only if they itemize
• Must have legal obligation

After divorce:

• Owner/payer deducts
• Alimony considerations may affect

Transfer Between Spouses

Generally tax-free:

• Transfers incident to divorce
• No gain or loss recognized
• Basis carries over

Frequently Asked Questions

Does a divorce decree remove me from the mortgage?

No. A divorce decree is an agreement between you and your spouse. The lender isn’t bound by it. You remain liable until the loan is refinanced or paid off.

Can I be forced to sell the house in divorce?

Courts can order a sale if spouses can’t agree and it’s the only fair resolution. This is often a last resort after negotiation fails.

What if my spouse won’t refinance as required?

Return to court for enforcement. The decree should include consequences. You may be able to force a sale. Document everything.

Will divorce hurt my ability to get a new mortgage?

Divorce itself doesn’t, but factors related to it might: reduced income, credit damage from missed payments, or the existing mortgage still counting in your DTI.

How is equity calculated in divorce?

Typically: current appraised value minus mortgage balance equals equity. This is divided according to your agreement or state law.

Can I buy a house before the divorce is final?

Possibly, but it may complicate things. The new house could be considered marital property. Consult your attorney about timing.

What happens if we’re both on the mortgage but only one on the deed?

The person on the mortgage is liable for the debt. The person on the deed owns the property. These issues should be aligned during divorce resolution.