What Happens to Your Mortgage if You Get Divorced?

How Does Divorce Impact a Mortgage?

If you have a joint mortgage, both parties will remain responsible for repaying that debt—whether you're married or not. During a divorce, you'll divide up shared accounts that the two of you own together. That can include a home loan, credit cards and other debt that you acquired jointly while married.

Each state has its own laws for how debts and assets are to be split.

• Community property states: Each spouse equally owns any property, debts and assets that were acquired while married—no matter whose name appears on the accounts. Community property states include Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington and Wisconsin (Alaska is optional).
• Equitable distribution states: The court divides marital property in whichever way it deems most fair.

There's often room for negotiation during a divorce—and you can divide up your marital property any way you like, assuming both parties sign off on the agreement.

Options for Handling a Mortgage in a Divorce

When it comes to a joint mortgage, you have two options. The right one for you will depend on your goals, your financial situation and what you and your ex-spouse are able to agree on.

One Spouse Keeps the Home

One of you may want to stay in the family home, especially if you have children who are comfortable living there. Remember that any home equity you've established technically belongs to the both of you. As such, the person staying in the home will likely have to "buy out" the other spouse's ownership stake for an agreed-upon amount.

How an Equity Buy-Out Works

The amount paid will depend largely on the value of your home and your level of equity. You can calculate the latter by subtracting your outstanding mortgage balance from the home's current market value.

Let's say your home is valued at $500,000, and you owe $200,000 on your mortgage. That puts your home equity at $300,000—or $150,000 for each spouse. If you want to stay in the home, you might need to come up with that amount to buy out your ex-partner. But you may be able to negotiate by making some concessions. For example, you might give up your half of a joint retirement account to reduce the buy-out price.

The Mortgage Will Need to Be Refinanced

If one spouse keeps the home, they'll need to refinance the mortgage to remove their ex-partner's name from the debt. That means they'll have to qualify for a new home loan on their own, which may be difficult if their ex-spouse was the primary wage-earner. But if you're receiving child support or alimony post-divorce, that money may count as monthly income.

Your mortgage lender will consider the following factors during a refinance:

• Your credit score
• Your income and employment
• Your assets and debts
• Your home value and equity position
• Your payment history on your original mortgage

You might consider a cash-out refinance if you need a lump sum to buy out your ex-spouse's equity. Just keep in mind that refinancing comes with closing costs, which typically add up to 2% to 6% of the loan amount.

Learn more: When Should You Refinance Your Mortgage?

Sell the Home

The other option is often the simplest one—sell the home, split the proceeds and go your separate ways. This may be the best route if:

• You don't want to stay in the home for personal reasons.
• You can't afford to carry the mortgage on your own.
• You don't have the funds to buy out your ex-spouse.
• You're looking for a fresh start and want to use the sale proceeds to buy a new home.

The amount you make on the home sale will depend on your home's value. You'll also have to satisfy your mortgage balance and pay other costs related to selling a home—like closing costs, taxes, real estate agent commissions and home repairs. All together, you can expect to spend 10% to 15% of the final sale price. What's left over can be split evenly between both spouses, unless you come to a different agreement.

Learn more: Things Not to Do When Selling a House

What Happens if You Can't Reach an Agreement?

You may find yourself at a standstill with your ex-spouse. While frustrating, it's important to continue making your mortgage payments. Here are your options in terms of next steps:

• Go back to negotiating: Connect with your lawyer about ways to leverage your position. Are you willing to make any concessions that could move things along? Or trade other debts and assets to come to an agreement? Bear in mind that legal fees can add up quickly—and the longer it takes to reach a deal, the more you're likely to spend.
• Court intervention: If you truly cannot come to an agreement, the next step would be involving the courts. That can include court hearings, required mediation or a divorce trial. A judge or jury may ultimately decide on matters like property division and child custody.
• Continued joint ownership: If your divorce is amicable, you may decide to keep the mortgage in both your names. The spouse who remains in the house might make the mortgage payments on their own, or the couple may share the payments. When it comes time to eventually sell the home, they can split the proceeds. The downside is that this will keep you financially connected to your ex-spouse—and could risk your credit if they fail to make mortgage payments.
• Foreclosure: If you can't reach an agreement and your mortgage goes unpaid, you could face foreclosure. This is a worst-case scenario that will negatively impact your credit score for seven years. It can also affect your ability to qualify for a new mortgage once the divorce is finalized.

Financial Considerations for Divorce and Mortgage

Preparing your finances for a divorce can help you recover once the dust settles. In terms of a joint mortgage, below are some important steps to take post-divorce.

• Keep up with your financial obligations. If you're responsible for paying child support or alimony, or continuing to make payments on a joint mortgage, you'll want to make good on those responsibilities. If your financial situation has changed, you can contact your ex-spouse about revising your agreement.
• Continue paying your mortgage on time. Whether you stay in the family home or take out a new mortgage, always making your payments is essential. Your payment history accounts for about 35% of your FICO^® Score^☉, and just one missed payment can hurt your credit score.
• Protect your credit scores. On top of paying your bills on time, you can maintain good credit by keeping your debt balances low and having a diverse mix of credit accounts.
• Be aware of the tax implications. You might owe capital gains tax if you and your ex-spouse sell the family home. However, you may qualify for an IRS tax break that allows you to deduct up to $250,000.

Frequently Asked Questions

The Bottom Line

Divorce is complicated enough, but having a joint mortgage can add an extra layer of complexity. You and your ex-spouse will have to decide what to do with your home loan. That may involve staying in the house and refinancing, allowing your ex-spouse to buy you out of your equity or selling the home and splitting the proceeds.

What matters most is continuing to pay your mortgage while you're figuring out the details. Otherwise, you could damage your credit and potentially face foreclosure. Signing up for free credit monitoring from Experian can help you keep track of how your credit is doing as you're navigating the divorce process.