Coping with Divorce: How to Manage Your Mortgage When You Separate

This article originally appeared on Avvo, written by Andrew Dickens.


Financial problems are constantly among the main reasons for divorce, so it’s no surprise that divorced couples often end up falling behind on their mortgages and facing foreclosure. And unfortunately, lockdown – frustrating and stressful enough in itself – is often complicated by issues unique to divorced.

Until the debt do us part

It is very common in divorces for one spouse to transfer their interest in the matrimonial home to the other. It is also very common for the transferring spouse to think that such a transfer relieves them of all responsibility for the mortgage—unfortunately, that’s not how it works.

If both spouses are listed as borrowers on the mortgage, transferring ownership alone will not remove one spouse from the mortgage.

As far as the bank is concerned, both spouses are responsible for ensuring that the mortgage is paid, regardless of the name on the deed or not.

If the mortgage remains unpaid, a foreclosure will be filed against both spouses, both spouses’ credit will be affected, and both spouses will face the possibility of a deficiency judgment (a judgment ordering payment of any shortfall between what was still owed on the mortgage and what the property sold at the time of foreclosure).

Unsuspecting spouses often find themselves facing foreclosure after divorce of a home they no longer live in and no longer own.

And so, until appropriate steps are taken to clarify the financial responsibility for the mortgage, the divorce may not be the final and complete separation that a couple hoped for.

Happy forever

Despite the inherent challenges, it is in the best interest divorced couples to work together toward a solution that effectively realizes their intentions and allows both spouses to move forward without uncertainty about their financial obligations or fear of foreclosure.

Potential solutions include:

Hypothesis. If one spouse is to remain in the property, that spouse may be able to assume the mortgage. This means that the assuming spouse would take full responsibility for the mortgage payments. The non-assuming spouse would be relieved of any liability for repayment or future foreclosure.

Refinance. The spouse who keeps the property may be able to refinance the mortgage. Similar to taking over the mortgage, refinancing will completely eliminate the other spouse from liability. The refinancing spouse will have to rely solely on their own credit and finances in order to qualify.

Loan modification. Once a divorce is finalized and a divorce decree has been issued awarding ownership to one spouse, the bank may be willing to allow that spouse to apply for a loan modification without the other. If a loan modification is approved, the other spouse will be completely removed from the mortgage and released from any future repayment or foreclosure liability. Note that this varies from lender to lender and some lenders are unwilling to release a spouse from the mortgage without refinancing.

Hope for the best, plan for the worst

Whatever solution a couple chooses to pursue, it’s a good idea to anticipate the possibility that their plans may not work out.

Any separation agreement or divorce decree should place a time limit on a spouse’s attempt to take advantage of these options. For example, if one spouse is unable to remove the other spouse from the mortgage within one year of separation or divorce, there could be a provision requiring the house to be sold.

Unfortunately, no matter how well thought out, divorce and separate properly financial responsibility for the mortgage can be a difficult process. Several factors must be taken into account in order to properly protect the interests of each spouse.

This is all good advice, but those considering a possible divorce that also potentially involves foreclosure should consult a licensed attorney who can work with you to take advantage of the options available and help you avoid future surprises or conflicts.

With the right help, it is possible for spouses to break up and both be happy with the outcome.

About Gertrude H. Kerr

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