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When you divorce, how do you break up the mortgage?

Money issues are one of the three leading causes of divorce. The bad news is that dissolution of a marriage often adds to this problem. When you divorce, you have to decide how to split your assets and your liabilities.

Take a mortgage, for example. These days, a home is typically both. So now, you and the person you are no longer able to live with, have to decide how to handle this huge bill. This is why getting a lawyer involved is often the only way to proceed.

California community property law

In California, you and your spouse both share equally in the ownership of property you purchased together during your marriage. You also share in the bills you have acquired after saying, "I do". This means that the house you bought together belongs to both of you, and the accompanying mortgage is both your responsibilities.

Divorce means you have to decided how to split up this asset. If you are unable or unwilling to sell, it also means you must determine who continues to pay the mortgage and how to enforce the decision to avoid credit or debt problems and future real estate purchase eligibility.

Available options for dealing with your marital home and mortgage

There are some common options for handling real property in a divorce, but they each come with pros and cons.

  1. Selling: This is arguably the most popular option. Sell the house and split the remaining proceeds. Unfortunately, the California housing market isn't what it used to be, and this effort may not be all profit. If you are upside down on the mortgage, you will both owe money, and if you opt for a short sale, it can take a while. Additionally, if you have children, you may wish to keep the family home and make other arrangements.
  2. Retain and refinance: If you have decided to keep the house, you still need to decide what to do with it and how to pay the mortgage. If one of you wants to continue living in the home, you can pursue sole refinancing. Challenges here are with affordability and approval. The bank will require sufficient income, good credit and a mortgage that is above water. If one spouse can meet these criteria alone, you will still need to deal with how to offset the other spouse's equity share in the home. The person retaining the home must also consider whether he or she will have enough liquidity to pay other bills.
  3. Loan Assumption: Another way to tackle keeping the house is through loan assumption. It's a stretch, but some home mortgage companies still offer them.
  4. Keep the home and continue paying: If you can't or won't sell and are unable to refinance or obtain a loan assumption, your remaining option is to continue paying for the home "together." In this scenario, you may be able to lease the property and pay the mortgage with the rental income, share the property or agree to allow one spouse to remain in the home. The obvious risk is ensuring that you both continue paying your share.

Clearly, these are difficult decisions involving complex issues. The guidance of a skilled divorce attorney can make a major difference in the financial consequences of how you break up your mortgage in a California divorce.

Source: Institute for Divorce Financial Analysts, "Survey: Certified Divorce Financial Analysts Reveal the Leading Causes of Divorce," Accessed July 23, 2016

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