A home mortgage is usually the most significant debt divorcing spouses share. Sometimes, one spouse cannot afford the payments without the other spouse's financial contribution. In this case, the most sensible thing to do is usually to sell the house and pay the mortgage off. However, if one spouse wants to keep the home, liability for the mortgage may become a big issue.
Mortgage indemnity clauses are common in divorce decrees when one spouse retains the home. However, even if your decree includes one, it may not offer you much protection. Such provisions generally only allow you to take your ex back to court if he falls behind on payments and you have to make them yourself to salvage your credit. Indemnity clauses are simply your ex's promise to hold you harmless from having to pay the mortgage. He has promised the divorce court that he’ll accept responsibility for the payments. Unfortunately, this promise doesn’t bind the mortgage company. Regardless of the terms of your decree, the lender can come after you for payment if your ex defaults. In this case, your only option is to make the payment yourself and utilize the indemnity clause to ask the court to make him reimburse you.
For added protection, you or your attorney can build extra language into your indemnity clause, or ask the court to do so if you’re divorced by trial rather than marital settlement agreement. You can include a requirement that your spouse must remove you from the mortgage. Generally, the only way to do this is through a refinance. Just as the lender can come after you for late payments even if you have an indemnity clause in your decree, it can also refuse to let you off the hook for future payments just because you’re divorced. You can usually only get your name off the mortgage if your ex replaces the joint mortgage with one in his sole name. This requires him to qualify based on his income alone.
In exchange for turning responsibility for the mortgage over to your ex, he’s going to want sole title to the property. In divorce situations, you usually accomplish this with a quitclaim deed. This type of deed transfers your share of ownership in the property to your spouse. When you sign a quitclaim deed, you relinquish any and all interest you have in the property. However, even this doesn’t prohibit the mortgage company from pursuing you for payments if your ex doesn’t make them. Most attorneys will advise you not to sign the deed until your ex has actually achieved the refinance and you’re free and clear of any liability for the mortgage. However, some lenders won’t refinance until you’ve signed the deed. You can get around this by attending the closing on your ex’s new mortgage and signing it at that time.
A successful indemnity clause depends on several sequential factors. Your spouse must promise to hold you harmless on the mortgage. He must agree to refinance to relieve you of any liability for it. Then he must actually do so. This may take months and there may be a window of time during which you’re still vulnerable. Even if you trust your ex implicitly, it’s a good idea to check your credit report occasionally while the process is playing out. Make sure he’s paying as he said he would. If he’s not, it’s better to find out when he’s only a payment or two in arrears than when he -- and by extension, you -- are facing foreclosure.
Beverly Bird is a practicing paralegal who has been writing professionally on legal subjects for over 30 years. She specializes in family law and estate law and has mediated family custody issues.