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Divorce and Your Mortgage: Here’s What You Need To Know

Divorce can be a difficult time for a couple, not only for them but also for their family members – particularly children. Working out a fair settlement takes time, especially when a property is involved in the split. If you and your soon-to-be-ex shared home, you may have been paying off a mortgage loan together for the past few years. What becomes of the payments on that existing mortgage once a breakup happens? There are a few determining factors into what happens to that monthly due.

Deciding on the Future of the Home


If your marriage is headed towards divorce or annulments are in your future, you’ll want to have a clear path as homeowners for what to do with your house. With an annulment, the marriage is essentially erased. The marriage is considered to never have happened, so there are no issues regarding spousal support, division of property, or other legal matters that often surround divorce. This usually means that the parties are able to work out who remains in the home, or opts to put that piece of real estate on the market to be sold, splitting the profits.

Deciding on a home’s future can become testy during a divorce. If both partners wish to stay, it could become a matter for the courts. A couple may decide on who will stay in the home and take over the mortgage payments based on prior individual requirements. A divorce agreement might require the sale of the home and splitting of profits if the couple doesn’t meet a deadline to refinance the mortgage into one spouse’s name. If neither spouse can afford the mortgage on their own, they may have no choice but to sell.

Refinancing and Home Equity


If you are going through the divorce process, one partner may decide it is in their best interest to remain the home. This is especially the case if children are involved, as to not force them to move from their home or relocate to another city. That’s where mortgage resources can help homeowners uncover a better mortgage rate to refinance the current agreement. Some couples decide to refinance a joint mortgage loan into the name of one spouse upon divorce. What this does is release the other spouse whose name is coming off the loan from fiduciary responsibility.

A big factor for many divorcing couples is the reduction in income and assets that help borrowers obtain the best mortgage rates available. A mortgage calculator can help locate affordable rates throughout the legal process. If you opt for the home selling route, you may want to look into a professional appraisal. This will determine the home’s value for a new buyer. Additionally, this amount can be split per a legal separation agreement, usually affording each partner equal parts of the sale.

Tax Implications


In addition to legal advice from a divorce attorney, you may want to work with a tax expert to understand the state law and other legalities surrounding tax implications and a home’s mortgage. Beyond equitable profits, capital gains taxes could come into play from the profit of a real estate transaction. Across the United States, up to $250,000 of gain from the sale can be deducted. It’s important to note this is for a primary residence, not a vacation or investment property.

There are significant tax implications for a fault or no-fault divorce beyond mortgage loans. Alimony and child support payments are also taxable income. Be sure to work with experts to establish the correct filings as listed out by the payments offered in court papers in the dissolution of a partnership. It’s important to be sure that a divorce filing not only means the end of a married couple but assures some peace of mind financially for both parties.