Divorce is fraught with heated discussions on financial and child issues and at the same time spouses have to deal with the emotional turbulence of a marriage breaking up. But home payments should be decided with a detached and rational mind to avoid regrets and having a monetary burden to carry for years.
There are many ways by which home payments can be handled in a divorce settlement. Individual circumstances and other factors come into play when making a decision. If you live in a state that follows the community property law, your assets will be divided equally between you and your spouse. In a state that has equitable distribution law during a divorce, assets are divided fairly but not necessarily equally.
Just as assets are marital property, so are debts. Hence, in states with community property like California, the home payments are divided equally between the couple. You will each be paying half of the monthly amortizations every month. If your spouse defaults, you will have to shoulder the payments by yourself. Thus, the easiest way out of a home you no longer share is to sell it.
Sell the house, pay off the balance of the loan and divide the remaining amount equally between you. But a problem arises if the proceeds of the sale is not enough to pay the loan. The outstanding balance will then be divided and both of you will pay for it. You can negotiate with the lender for a short sale. In a short sale, the house will be sold for less than the value of the loan and, upon the prior approval of the lender, the mortgage is considered fully paid. If this is the case, be sure to go over the documents with a fine-tooth comb so that the lender cannot run after you claiming that you still owe them money.
Keep the house, refinance the loan in your name only and pay your spouse for his share of the house. Refinancing is possible only if the mortgage is not underwater, you have sufficient funds to qualify for a refinance and your spouse agrees to it. Refinancing will pay off the existing mortgage and your ex’s share. The new loan and the property will be in your name alone, so you are solely responsible for paying the mortgage and your spouse cannot lay claim to the property.
Refinancing can be quite costly. There are the penalties for pre-terminating the existing loan, closing costs and paying points. You will also be stuck with a mortgage in the years to come. If the main custodial parent gets to stay in the house, child custody lawyers think this will be good for the children as the destabilization will be minimized for them in the aftermath of the divorce.
Rent the house out and use the money to pay for the mortgage or part of it until you can find a buyer. Renting must have the consent of both ex-spouses. It will put on hold a short sale by buying you time but make sure your ex pays his share of the mortgage if the rental is not enough to cover it. Since the mortgage is still in both your names, the lender will pursue you if your partner defaults on his share of the loan payment.
The downside to renting is, you still have an existing mortgage to pay off and you cannot get another house loan. If you can sell the house at its market value and close your loan, you can move forward towards buying your own house.