Cincinnati Family Law & Divorce Blog: What are the considerations in evaluating whether both spouses should remain on a mortgage together following a divorce?

It is common in a divorce that one spouse may retain the marital home in lieu of the parties selling the residence. When one spouse keeps a home, it raises several issues particularly if both parties are obligated on a mortgage. The first issue is how the other spouse will receive his or her equity in the home if it is a marital asset. There can be various solutions such as trading off the home equity against another marital asset that the spouse is retaining. Sometimes a person may have enough cash from the property division to make a lump sum payment. A third option is to refinance the home mortgage and borrow enough to pay off the other spouse. However, in many circumstances, the first two options are not available and in the third instance, if the mortgage is in joint names, it presents different challenges. There may be reasons both parties would consider remaining on a joint mortgage without the need for refinancing.   Lawyers are often asked if remaining obligated on a joint mortgage is a reasonable solution.

Most lawyers will answer that if a joint mortgage can be avoided, it should. Many complications can arise which include legal issues if one of the parties dies while on a joint mortgage. Staying on a mortgage may lead to credit problems for both parties even though only one of the parties is required to make the payments. Furthermore, the spouse who is not retaining the home may want to buy a home and could have problems getting approved for his or her own mortgage while still legally liable for the mortgage on the marital home. On the other hand, the parties often agree that it is best for one of them to remain in the home for the benefit of the children, and the person remaining may not qualify for a mortgage due to his or her work record, lower earnings, or bad credit. In those situations, it may be impossible to qualify for refinancing, in which case, the choice is for both parties to stay on a mortgage for a certain period of time or the house must be sold. The other impediment many people face (especially in 2023 when this is written) is that the mortgage rate on the marital residence may be much lower than the rate would be on a new mortgage, and this could make the house unaffordable.

If both parties decide to remain on a mortgage, there are terms that can be written into a legal agreement that outlines conditions for when the residence must be refinanced solely into the name of the party keeping the residence, or even requiring that the house is sold at a certain time. These terms could include any of the following: a provision that states the spouse retaining the residence must refinance upon the mortgage interest rates dropping to a certain rate, providing a specific date or event such as the child’s graduation from high school that would trigger a refinance, or a term the states if the spouse retaining the home misses a mortgage payment, that person must immediately refinance the home into their sole name or list the property for sale. Terms such as these provide some protection for the party who is remaining on the mortgage, while still allowing the party staying in the residence some breathing room. These safeguards don’t provide complete protection but should be weighed against the importance of one person staying in the house.

Determining how to approach who retains the marital residence and under what terms can be a difficult subject, with many considerations informing the decision. A lawyer can present the pros and cons of such an issue so that a well-informed decision can be made.