Rising interest rates place an additional burden on divorcing couples who share a mortgage. Arguments over the home, especially when children are involved, can extend the resolution of divorce settlements for months. Yet, the mortgage still needs to be paid regularly which makes it one of the most important decisions to work through in a divorce.
A Mortgage in Both Names
If the home’s mortgage is in both names then the legal responsibility is shared. Missed payments will have a deleterious impact on both parties’ credit scores which could hinder future borrowing and rental opportunities. As a result, it is imperative divorcing couples work together to maintain their financial obligations. Some mortgage lenders offer alternative payment options and arrangements such as switching to interest-only payments or payment holidays, but only for a limited time while economic issues are being resolved.
Three Options for Dealing with Mortgages
1. Sell & Divide
One of the most common approaches is to sell the home, pay off the mortgage, and then divide up the remaining equity. This is an approach that makes sense if both parties can then use the equity from the home to put down as a deposit for a new home. The division of equity should take into account the borrowing capacity of both parties as well as their savings. If there is a significant difference between the two then the courts will need to weigh in.
2. Maintain
While not the most attractive option, for some former couples simply maintaining the home (and mortgage) while agreeing to sell at a future date makes the most sense. This scenario is common when one parent would not be able to obtain a new mortgage on their own and prefers to keep the kids living in their family home until they reach 18 or leave for college.
3. Buy (or be Bought) Out
Lastly, you can either buy out your ex-partner or opt to be bought out. This is a viable option again to maintain the home for the children while at the same time severing and closing the previous financial relationship.
Go to Court
By far the most costly solution would be to go to court. This takes the decision out of your (and your ex’s) hands and does not guarantee a favorable outcome for you. Timing is also an issue, especially in areas where there are lengthy backlogs. The case could take many months which is burdensome for all.
