Divorcing couples have to find a way to split their assets, including the marital home, as part of the divorce procedure. If one spouse plans to live in the home after the divorce, the court can order, or the spouses can agree to have, the spouse who remains take over the financial responsibility of paying the mortgage. However, there are few laws that specifically govern refinancing for a divorce situation and such refinances can be complicated.
Refinancing is often the best option for spouses when one spouse intends to take over the house and the mortgage following a divorce. Generally, the spouse who gives up the home completes a quitclaim deed giving up any rights he has to the home, while the other spouse refinances the mortgage in her name only. The refinancing process is typically the only way to get the releasing spouse's name off the mortgage as well as the deed. However, it is up to the spouse who keeps the house to obtain a new mortgage on the house.
The Divorce Decree Rules
Neither spouse is legally required to refinance unless their divorce decree indicates that they must. If refinancing is appropriate, it is generally in the best interests of both parties to ensure that their divorce decree specifically describes each spouse's obligations. If the divorce decree does not address refinancing the mortgage, either spouse may go back to court to ask the judge to revise the decree with more specific instructions. However, going back to court can be an expensive process. Spouses can also voluntarily agree to a refinance that is not addressed in the divorce decree.
When Spouses Can't Refinance
Refinancing can sound like a great plan, but it might hit a snag when the spouse who wants to refinance applies for a mortgage and discovers that he doesn't qualify for a loan on his own. Because banks are not required to comply with a divorce decree, a judge cannot force a bank to offer the refinancing party a new loan if he doesn't qualify. Thus, a divorce decree can indicate that a party needs to refinance, but the refinance may not be possible. To prevent this problem, spouses can check out their refinancing options early in the divorce process. If a spouse cannot refinance the home into his own name, the couple may have to sell the house and split the proceeds, or, if the house is under water, split the remaining debt.
If a Spouse Fails to Refinance
When a divorce decree requires a spouse to refinance, he must at least attempt to do so. If he tries and cannot refinance, the couple can return to court for a modification to their decree. If a party refuses to try to refinance, forcing his ex to remain on the mortgage, the party who wants out of the mortgage can return to court to ask the judge to enforce his decree. A judge can find the party who is refusing to refinance in contempt of court, issuing fines and even jail time for repeated refusals to follow the divorce decree.
- Creatas/Creatas/Getty Images