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How a mortgage is affected by a couple's divorce

One of the primary concerns of any Alabama couple going through divorce is how to divide marital wealth in a manner that is fair and balanced. Often, the family home represents a significant investment during the marriage, and spouses may be at odds over how to handle the disposition of this valuable asset during divorce. Unless both spouses agree to sell the home and divide the proceeds, the mortgage on the home will pose a challenge for both parties.

If one spouse wants to keep the home and the other is willing to walk away, then the retaining spouse will have to come up with some other item(s) of value to make up for the equity that the departing spouse will lose. Even when that hurdle can be crossed, the fact remains that both spouses will still be listed on the mortgage until such time as the loan can be refinanced by in the sole name of the retaining spouse. This can leave the spouse who departs from the home with no ownership interest in the property, but still on the hook from the perspective of the lender if payments are missed.

In addition, if the spouse who does not keep the house wishes to purchase a new home, he or she can encounter difficulty because the first mortgage will remain listed on that person's credit report as an ongoing debt. It can be difficult to take on a new mortgage unless the borrower has income that would allow for both loans to be covered. In this way, a spouse who allows his or her partner to stay in the home without refinancing can create a situation that could prohibit the purchase of a new property.

One way to address this property division issue is to draft language into the Alabama divorce settlement that states that the retaining spouse will refinance the mortgage in his or her sole name within a given period of time after the divorce is made final. If that outcome is not reached, then both parties agree that the house will be sold and the loan paid off. This gives the retaining spouse a window in which to take care of the home's financing. It also gives the departing spouse the security of knowing that if refinancing is not possible, he or she will not be prevented from buying a new home down the road.

Source: Time, "What Happens to Your Mortgage in a Divorce", Ashley Eneriz, March 29,2016

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