Millions of couples divorce and in many of those failed marriages, one thing which remains is a joint mortgage. When they were married, the couple bought a property, usually the family home, and both partners agreed to the mortgage document. They became jointly responsible for the repayments of the loan.
Fast forward to the divorce. The house still exists as does the mortgage but the marriage is no more. So, what to do?
This can become a tricky situation. It can result in severe financial pain long after the divorce has been granted.
Now it may be that one former spouse wants out completely and no longer wants their name on the title deed and as part of the mortgage. Fine but it's not as simple as that. Generally speaking when a bank draws up a contract, that contract remains in force until the loan is paid in full.
The divorced couple has several options. They could of course sell the property and then neither would have their name on the mortgage document. But that's not the issue here. We are assuming that one partner wants to remain in the house.
This often happens when children are involved. Seeing their parents split can be traumatic enough but at least staying in familiar surrounds doesn't add to the fallout from a divorce.
But the bank won't change the details unless the entire mortgage is refinanced - and that costs money. The couple could agree that one partner will pay the mortgage alone or there could be a sharing of the payments as part of an alimony or child support arrangement.
That all sounds fine but what if the mortgage payments fall into arrears? Who is responsible? Well according to the bank, whoever is on the mortgage document is responsible. That could lead to a poor credit rating or, at the extreme end, to
joint bankruptcy Any couple, who jointly own the family home with a mortgage, need to be very careful when divorcing to sort out the name or names listed on the mortgage document. After all, who can predict the future?
Everything may be fine if the partners can stick to any agreement and neither gets into financial difficulties.
So let's say the couple leave the document as is and strike an agreement for making the repayments. But what happens if one partner gets into financial trouble and can't meet their end of the bargain? What happens if one partner re-marries and has a new spouse and a family to care for? The bank has no interest in the marital situation of the couple. The bank is primarily interested in securing its investment.
Like marriage and mortgages, both events are contracts. Both are established according to the laws of the land. You cannot change the terms without following the rules allowed for anyone to do so.
You could have a spouse's name removed from the mortgage document but that would require re-financing. Would the remaining spouse have enough income to make the repayments? Who will pay the costs of drawing up a new mortgage?
Changes can be made but it is not easy and it is not cheap.
Here are additional resources you might be interested in: Can you Afford to Refinance the Mortgage? More information on Divorce Properties and Finances
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