Are you going through a divorce or ending a common-law arrangement and if so, how will you be dividing your property? Such assets can make the already aggravated situation even more stressful. Divorce is complicated on its own merit.  Learn below how is a mortgage dealt with for married couples and common-law couples. Honestly, the complexity will depend on how each side decides to handle the situation. A buyout is the most common choice. In this blog, we’ll discuss how a mortgage is divided during a divorce and buyout options to consider.

How a Property or Mortgage is Divided 

Dividing Your Property During Divorce

When a married couple divorces, both parties have the right to remain in the home so long as there isn’t a court order preventing one from doing so. Neither spouse can sell, mortgage, or even rent the family home if the other party is not in agreement with the decision. Even if one party decides to leave the family home, that party is still obligated to pay the mortgage and bills.

Dividing Your Property in a Common-Law Separation

There is a difference between divorce and common-law separation. If you are common-law, any property that you bring into or purchase during the relationship remains your property. This is true so long as your name is on the property title.

The owner is permitted to remain in the home where the common-law partner is not. If the property in question is jointly owned, you may either divide the money upon the sale of the home or one party would need to buy the other partner out.

Cohabitation Agreement

Common-law partners may have a cohabitation agreement drawn up. This is a legal agreement that defines the living arrangements and defines what would happen during a common-law separation. In this scenario, you are welcome to pre-designate an attorney to assist which would most likely lead to a buyout.

Mortgage Buyout Stages 

A buyout may be required during a divorce or common-law separation. Your lender will want that security knowing that his investment is protected. First, you’ll want to be fully sure that the marriage or relationship is over.  Don’t go through these extreme measures if there is a spark of hope.

Next, have your attorney draw up a Separation Agreement that will require both party’s signatures. This outlines how all assets will be split. This even details custody of children, spousal support, and child support. Without the separation agreement, you are not considered legally separated nor can the buyout process begin.

Finally, decide who wants to keep the house. If you both want to sell, a buyout is not required and each party receives half. If one party would like to keep the house to live in it. Technically, both parties are legally obligated to pay the loan off if both their names are on the mortgage, so the lender would feel much better if it is handled at this stage. This is considered a risk and your credit depends on it.

It sounds easy. but I can assure you, it isn’t, This article simply lays out the steps but leaves out the emotion that goes with this process. That is why determining details in the separation agreement is so important. It allows the ability to move on quicker.

Mortgage Buyout Options

One Party Leaves – No Cash Requested

The partner who leaves the home will need to request a Release of Covenant from their lender. The party remaining in the home must requalify for the mortgage via their own credit.

One Party Leaves – Cash Requested

This buyout option requires the party remaining in the home to purchase the other half of the property from the party leaving (or whatever percentage is agreed upon. The party remaining in the home will need to again, requalify for the mortgage to complete the buyout. The party leaving will be released from any obligation to the original mortgage.

Sell the House and Split 50/50

The easiest resolution is to sell the house and split the sale 50/50.  This allows you to pay the mortgage off and resolve any outstanding bills, Here, no buyout is required, and no need for an attorney or mortgage broker.

Both Parties Have No Equity and cannot Sell or Refinance

If both parties owe more on their home than it’s worth and they have no equity, consider renting the home to help pay the mortgage and other bills. A joint venture agreement is the perfect solution and helps with your future credit.

Contact me if you have any further questions on this process.