Divorce proceedings are a legal process through which people terminate their lawful marital relationship and separate their lives. Addressing financial matters is a key component of the divorce process.
Spouses have to separate their assets and split up responsibility for their shared debts. A financed home can simultaneously be the most valuable asset spouses own together and also their biggest source of debt. Their equity could be worth hundreds of thousands of dollars, but a mortgage can impose a similar amount of financial responsibility on the spouses.
If one spouse intends to keep the marital home, refinancing the mortgage on the property is typically part of that process. What do spouses need to know about refinancing during a divorce?
There is a standard process in place
Typically, unless the divorce is amicable and guided by an airtight written agreement, spouses should wait until the courts approve the final property division order to make any major financial moves. Once a judge has approved an agreement regarding the home or settled the dispute regarding the property, spouses can then move forward with refinancing and otherwise separating their lives.
Generally speaking, the spouse leaving the home typically needs to execute the deed before mortgage refinancing can occur. They have to release their interest in the property so that the spouse remaining in the home can assume sole ownership.
The spouse remaining in the home may arrange to withdraw equity if doing so is necessary to compensate the other spouse. Doing so generally increases monthly payments, which can influence the ability to qualify for a mortgage. Lower-earning spouses can sometimes use child support and spousal maintenance or alimony to supplement their traditional income when they apply to refinance.
The property division settlement could also include terms granting one spouse other assets in exchange for their share of home equity. It might make the spouse staying in the home responsible for more of the couple’s shared debts to make the final terms as fair as possible.
People who know what to expect when addressing their most valuable resources during a divorce may be less likely to make mistakes or end up embroiled in unnecessary conflict. Refinancing after a divorce is relatively common, and spouses who follow the right procedure can help protect themselves from misconduct and unfair outcomes.