With the rise in interest rates, I am finding more and more couples I work with simply cannot afford to refinance their mortgages and lose the low interest rates that they now have. These are cases where one spouse wants to keep the marital home and equity from the home is not needed to buy out the other spouse in equitable division. There are sufficient other assets, such as a 401(k) plan, brokerage account, a pension or even another piece of real estate that the non-marital home spouse can have to balance out the division of assets.
When a spouse cannot or does not want to refinance the marital home, several problems exist.
- If the mortgage is in both spouse’s names, the bank will continue to see the non-marital home spouse as responsible, no matter what the divorce decree or separation agreement may say. Should the marital home spouse default on the mortgage, which could be due to a disability or financial struggles, the other spouse will have to pay the mortgage or their credit will be affected.
- Fortunately, there is specific language that can be put in the divorce decree or separation agreement that places financial responsibility for the marital home mortgage and other expenses on the spouse keeping the home. This purpose is only so that mortgage lenders will not look at the marital home mortgage as a debt of the non-marital home spouse when they apply for a loan of their own.
- Taking the non-marital home spouse off the title is not a wise idea. That leaves this spouse liable on a mortgage without ownership interest.
- In North Carolina, and possibly in your state, once the divorce is final, the marital home magically switches from being tenants in the entirety, where both are 100% owners, to tenants in common, where each spouse is a 50% owner. What happens if one spouse dies? Think of these scenarios: The non-marital home husband dies, leaving his new wife as co-owner. New wife wants her 50% and demands the home be sold. Not a great scenario for first wife who now happily lives in the marital home. Or how about if the marital home wife dies, leaving the home to her minor children, and the ex-husband cannot afford to make the mortgage payments. His credit is ruined before probate can be completed.
- Also consider that the marital home spouse could have been paying on the mortgage for years and should be entitled to more than 50% of the value of the home. To keep the percentage ownership of the home equal to the investment in the home would require regular changes in the deed to change ownership percentages. That is something that is likely to slip through the cracks.
Given all these problems, serious thought should be given to refinancing or selling the marital home. People forget that interest rates may fall once again, giving you the opportunity to refinance again and lower your mortgage. Also, most people do not live in their home for a full 30 years. In fact, the average is just around 13 years. Please read my other articles on this website concerning the marital home to get a complete picture of the pros and cons of keeping the marital home.