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Dealing with a mortgage in a divorce

On Behalf of | Dec 27, 2023 | Asset Division, Divorce In Mississippi, Divorce In Tennessee |

When divorcing couples sit down to talk about dividing marital property, the family residence is usually the first asset they discuss. The simplest way of dealing with a home in a Tennessee divorce is to sell the property, pay off the mortgage and then divide the proceeds, but this approach may be unacceptable to spouses who have become emotionally attached to their homes. In these situations, the spouse who wishes to remain in the family home may want to leave the mortgage in place and continue to make the monthly payments. This is rarely a good idea.

Mortgage lenders

Failing to pay off a mortgage in a divorce is usually a bad idea because lenders are not bound by the terms of a divorce settlement. When people sign mortgage documents, they agree to make the required monthly payments. If they get divorced and accept a cash payment for their share of the home’s equity, they will still be responsible for making sure that the monthly payments are made on time. This is why most experts recommend paying off all jointly held loans during a divorce.

Refinancing a mortgage

Taking out a new mortgage and paying off the old mortgage solves this problem, but this is often easier said than done. The borrower’s income-to-debt ratio is an important factor when mortgage applications are evaluated, and divorced spouses living on a single income may not earn enough money to make the monthly payments and live comfortably. If housing costs including the mortgage payment, property taxes, homeowners insurance and maintenance costs account for more than 28% of a divorced spouse’s income, obtaining a mortgage could be difficult.

Decisions that cast a long shadow

Going through a divorce is usually an emotional process, but the decisions spouses make at the negotiating table can cast long shadows. Spouses may grow fond of homes where they have raised families and enjoyed happy times, but maintaining them on a single income is not always feasible. Leaving the mortgage in place would avoid the credit approval process, but this is rarely an acceptable solution because both spouses would remain responsible for making the monthly payments.

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