Spouses incur so many risks when they decide NOT to get rid of the marital home and the marital mortgage debt.
If the house is “underwater” or has an “upside down mortgage”, they can short sale the house before or after the divorce is final. Waiting to sell after the divorce could spell disaster.
Just look at these questions asked by a concerned ex-husband who has lost control
- My ex-wife decided to short sell the house after the divorce. I am still on the original mortgage. The court had awarded her this home a few years ago when we divorced. The house is worth about $100,000 less than the mortgage. What are the ramifications for me, having a a good job and assets?
- The lender may forgive the deficiency and issue me a 1099-c for their losses which may become taxable income to me.
- I heard that when the home is a primary residence the borrower may be exempt from paying taxes on the cancelled debt. But, will I have to pay tax, since technically that home is not my primary residence anymore?
- Will I have to pay taxes on the whole amount or just on half with the ex-wife paying tax on the other half?
- Does being divorced and house being awarded to the ex make any difference what so ever?
- Another scenario may be the bank not forgiving the deficiency. Will the bank then sue me alone, since I am employed and my ex is not?
- If the bank gets a deficiency judgment what power does that give them? Wage garnishment? Sweeping money out of my bank accounts? Forcing the sale of my assets?
- How do I contain my losses?
- What other risks am I incurring that I don’t even know about?
Wow. The problem is these are all valid questions.
All the above questions have complicated and fact-specific answers that need to be addressed by divorce attorneys, tax attorneys or CPA’s. A debt specialist attorney such as bankruptcy attorney or collections attorney may need to be consulted, also.
IT IS VERY RISKY TO LEAVE THE MARITAL MORTGAGE DEBT INTACT AFTER THE DIVORCE!
The frustrating problem is these questions should have been addressed and reflected in the divorce agreement that was crafted years prior.
- The post-short sale or post-foreclosure tax and judgment burdens may be disproportionately carried by the husband, in this case.
- These heavy losses were probably not calculated in the division of assets agreement.
- How likely is it the divorce agreement will be amended and have the ex-wife sell assets or write a check to the ex-husband to cover his new disproportionate burden? Not very likely.
- Who will pay the divorce attorneys to negotiate a new deal?
The Lesson: Pay Careful Attention to the Future Risks of the Marital Mortgage Debt
Yes, the habitual residence is a key consideration of child custody issues. Yes, keeping the marital home is often a trophy and a victory. But in a depressed housing market the mortgage debt may explode later on, causing more damage to one or both of the ex-spouses than the financial or emotional victories gained in the divorce battle.
During the divorce, the spouses and the divorce lawyers should consult with a Realtor who is a short sale specialist. The Realtor should also specialize in divorce situations.
In the Louisville KY are please call Dave Halpern any time at (502) 664-7827.