What Every Married Couple Should Know About Divorce and Real Estate
Til death do us part....
Parting comes sooner than death for the majority of married couples. It's an uncomfortable subject, but the truth is, there's a lot to learn when it comes to couples protecting themselves in a divorce.
Division of property is what we're talking about here. Whether or not you have children together, you may have a hard time getting your ex's liabilities off your credit report if your decree does not spell out in great detail who gets what, and how you are to go about freeing yourself from your ex partner's financial obligations. You may end up being attached to them via a bad credit ding if the contract isn't explicit. Do not leave this to chance, even if you have an attorney!
In general, if you own one property, one spouse will be awarded the property with the requirement that they buy out the other party in a specified amount of time. This can be done with cash (rarely a viable option), or refinancing, if there is enough equity in the property. The other common scenario is that the property is ordered to be sold and the equity divided. This may seem like a painful option for one or both parties, especially when childen are involved, but it is VERY WISE option. Here's why.....
Let's say wife gets the property. More than likely the decree will call for her to either A) pay off the loan or B) refinance the property, in a specified period of time, usually ranging from 30 days to 3 years. WHY? In order to release husband from liability.
You see, the mortgage company doesn't care about the stipulations in your divorce decree. They will hold both parties liable for making that monthly payment. They will only release you from resposibility if the person who was awarded the property can qualify to carry the mortgage on their own. Divorce leaves individuals at a financial disadvantage, so this is often not possible.
So let's say wife gets the property and she has failed to pay off or refinance the mortgage because she is unable. And say she has fallen on hard times after becoming a single wage earner, so not only can she not refinance, but she also misses a payment or two. What happens then?
Worst case scenario: the mortgage company comes after the husband for a property he doesn't even own, according to the divorce decree. Husband can pay what the wife owes and sue her for compensation, but it's going to be very difficult to get the money back from someone that can't pay the mortgage. Also, husband will have a hard time getting a loan of his own with wife's property on his credit report. Best case scenario: they don't come after the husband, but his credit is ruined.
It would seem that in this scenario, the husband would have some recourse in enforcing the wife to refinance or pay off the mortgage. He can try to take her to court for contempt or enforcement, but unless it is explicitly stated in the decree that X and Y will happen if wife fails to get husband's name off the mortgage, it is left to the judge's discretion as to whether he feels that enforcement is actually a modification of the decree, in which case, husband is out of luck.
So what should you do? Make absolutely, positively certain that the decree EXPLICITLY states what will happen if the person awarded the property fails to get your name removed. The best way to do this is through the sale of the property, and hopefully the home has equity. The home sale can be a whole other can of worms. If the property owner is unwilling, enforcement can become difficult and expensive.
Failure to address this in the divorce decree can ruin your credit for 7-10 years, and there's virtually no recourse. You can dispute it on your credit report, write to the the mortgage company (which 99% of the time will do nothing to help you), but it's so much better to have foresight, and head the problems off.
Keep in mind, each state's laws are different, but it can never hurt to be extremely clear about what will happen to real estate after divorce. It is a painful and confusing time, but if you keep this in mind, you will have tied up a loose end that you don't want coming unravelled years down the road.