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You can divorce your partner, but unfortunately, you can’t divorce your mortgage. And just like your partner, your mortgage will take what is rightfully theirs. One of the most stressful issues, when going through a breakup or divorce, is dealing with joint debt. When getting divorced, couples aren’t only dividing assets, but they’re also splitting up liabilities. Your mortgage is typically your biggest liability and has to be managed fairly despite conflicts occurring at home. Your mortgage lender doesn’t care about your arguments and relationship issues. So, put your emotions aside and deal with the financial problems at hand.

Pros and Cons of Joint Bank Accounts, here.

When buying your first home and putting both names on a mortgage, couples almost never think about how they’re going to split the loan if conflicts arise and the relationship fails. If you’ve gotten yourself into a situation like this, this article will help you decide how to divide your mortgage loan fairly (learn how to protect your finances during a divorce).

Determine The Home’s Value

Before deciding what to do with your property and how you’re going to divide the mortgage, you and your spouse must determine the value of your home. Your house is probably your largest asset and most costly debt, making it very difficult to divide. Using a realtor for a preliminary market valuation or hiring an appraiser could provide you with a detailed evaluation analysis of your home and how much its worth. Once you have this value, subtract the outstanding balance owed on the mortgage, and you will get the current value or amount of equity in your home. You and your spouse remain fully responsible for the mortgage unless you sell the property or chose to refinance. If you can’t do either, carefully explore your options, as they are very limited.

Need to pay off your mortgage early? Click here.

Solutions

Sell the house

The easiest way to deal with splitting a mortgage is to sell the house. The divorced couple should sell their property, pay off the mortgage, and move on with their own separate lives. A divorce is a sad enough time as it is. Instead of putting more energy into slowly paying off the mortgage, sell the home right away and pay it off so you don’t have to worry about accumulated interest charges. Even if your mortgage is worth more than your home (short-sale), sell the property, as you can use this money to pay off part of the mortgage. Even though a short sale can affect the credit score of both members, it may be better than keeping the mortgage in certain situations. Sometimes, the bank will even agree to release the borrowers from paying the difference during the short sale.

Additionally, don’t wait until the last minute to sell your home. If you feel things aren’t working out and it’s a possibility that you may take a break or split up with your partner, make sure you give yourselves enough time so that you can sell your home for as much as you’d like. If you sell in a hurry, you may not get as much money as you want.

Refinance

Another way to split the mortgage between a divorcing couple is to refinance the mortgage under the name of one spouse. This is a convenient but costly solution, as one spouse gets to keep the home but other costs are incurred for rearranging the mortgage. Refinancing your mortgage includes paying legal fees, appraisal fees, and possibly a discharge fee from your existing lender. Thus, even though refinancing is favorable, all the costs can add up quickly. Since divorces are costly enough as it is, it may not be in your best interest to spend even more money on refinancing. So, make sure you have the money to refinance if you plan to do so.

Keep in mind this option may not be the best option for everyone. The individual keeping the home must meet certain criteria, which proves they can manage the mortgage debt on their own.

  • The couple must be up to date on their mortgage payments
  • At least one spouse has a good credit and income (you can’t qualify for refinancing unless you have a positive credit score and history, and sufficient income)
  • At least one spouse agrees to leave the home to the other

Once again, this may not be the best option for you due to the demanding qualifications and maintenance problems. Usually, it is very difficult for only one spouse to upkeep the house. If you have trouble affording the house with only one income, do not refinance. Ask yourself, are you able to afford this house with your individual income?

Keep the house with both spouses on the mortgage

This option is always a possibility, but usually a last resort. If you and your spouse can’t come to an agreement and can’t sell or refinance the house, then you could keep the home with both names on the mortgage, while one person moves out. This is also the least favorable choice because the couple will have to fully declare the mortgage payments and other house related costs on any future loan or credit applications. This could prevent them from receiving another mortgage, thus hindering future financial needs.

Looking to break your mortgage contract? Read this first.

Be Responsible

Even though you’re going through a very tragic and emotional time in your life, it’s still very important to stay on top of your finances. This means keeping a positive credit score and history. Ensure you’re making payments on time and in full to keep a high and favorable credit score. Being responsible with your finances during this time will give you access to the best possible options when it comes to splitting the mortgage.

Caitlin Wood, BA avatar on Loans Canada
Caitlin Wood, BA

Caitlin Wood is the Editor-in-Chief at Loans Canada and specializes in personal finance. She is a graduate of Dawson College and Concordia University and has been working in the personal finance industry for over eight years. Caitlin has covered various subjects such as debt, credit, and loans. Her work has been published on Zoocasa, GoDaddy, and deBanked. She believes that education and knowledge are the two most important factors in the creation of healthy financial habits. She also believes that openly discussing money and credit, and the responsibilities that come with them can lead to better decisions and a greater sense of financial security.

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