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For many couples considering divorce, two questions are often top-of-mind: How will it affect my children, and what will happen to the house? In any divorce, one of the most important considerations is the fair and equitable division of property, assets, and debts.
Marital property consists of the primary residence – plus any additional vacation or rental properties – along with investments, cash, retirement and bank accounts, and businesses owned. The division of assets and debts in divorce can cause considerable strain on both parties as they work through untangling their financial obligations, so it’s important to consult with legal and financial advisers as you negotiate a settlement that best meets your needs. A question that is frequently asked is regarding the need to refinance the home after divorce.
Do you have to refinance after divorce? There is no legal requirement to refinance a home after a divorce, but there are several good reasons to do so.
You should refinance the home after divorce if you plan on keeping the house.
If you are keeping the home as your primary residence, refinancing will remove your ex-spouse’s name and pay off the existing mortgage . Your divorce settlement agreement will require you to refinance the home in your name only. To do this, you will need to qualify for the new mortgage using only your own income and assets.
Your ex will need to refinance the home after divorce if you do not plan on keeping the house.
If you are leaving the marital home to live elsewhere, the refinancing of the home mortgage by your ex-spouse will remove your liability for repaying the loan. Your ex-spouse continues to live in the marital home with the mortgage in his or her name only. If your ex is ever missing or late on mortgage payments, your credit score will not be adversely affected since your name is no longer on the loan.
As with any mortgage, it’s a good idea to refinance anytime you can get a better deal.
It’s always smart to safeguard your financial outlook, and that’s especially true when you’re adjusting to living on one income. Lowering your mortgage payment when you refinance the home after divorce is one way to accomplish this for the long-term. Take advantage of the benefits a refinance can offer when:
- Mortgage lenders are offering competitive terms and/or reduced closing costs;
- Interest rates have dropped since your previous mortgage originated, resulting in lower monthly payments.
Refinancing your house during divorce can therefore lead to some measurable benefits:
- The accumulating value of lower monthly payments will allow you to save thousands of dollars over the life of the loan.
- If it’s affordable to reduce the mortgage term, perhaps from a 30 year to a 15 year mortgage, you can take years off the obligation to make monthly payments. This allows you to own your home sooner, free and clear, and more quickly enjoy freedom from the debt and any resulting gains on the value of the home.
Refinancing your home can give you access to needed cash.
When loan conditions are favorable, you can take advantage of lower interest rates during a refinance to pull cash out from your home’s equity. Equity is the difference between what the house is worth and the outstanding mortgage. A cash-out option gives you access to cash without putting too much stress on your monthly budget. Divorce is a disruptive event for all involved, and you may need to take on new monthly expenses or replace expensive items that were awarded to your ex-spouse in the divorce settlement. The ability to convert your home’s equity into much-needed cash to cover these expenses will help get you back on your feet financially.
What you need to consider before you refinance your home:
- What does your divorce settlement specify about the division of the marital property, including the equity in your home? Those requirements must be met as you proceed with refinancing the home mortgage.
- Can I refinance my home without my spouse? It depends on your individual circumstances. Will you be able to meet the lender’s requirements for a new mortgage under your individual income, debt-to-income ratio and credit score? If not, it may be necessary to sell the home, pay off your ex-spouse’s share of equity, and enter the market to buy a home with a lower monthly payment.
- Have you considered the closing costs for refinancing? Can you afford any out-of-pocket costs associated with closing the loan? If not, it may be possible to roll those closing costs into the loan without significantly raising your monthly payment.
- How long do you have to refinance after a divorce? New Jersey law does not mandate a timeframe, but the court might specify a time limit in your divorce decree.
- Should I refinance my house before getting a divorce? Is it better to refinance a house before or after divorce? Refinancing your house before divorce is no different than a regular refinance, and may actually help you to avoid delays that may happen once the divorce proceedings begin. While it may be easier to refinance before the divorce, refinancing with only one spouse will still be dependent on that individual’s income, debt ratio, and credit score meeting the lender’s requirements. If those requirements can be met, refinancing before filing for divorce allows for the removal of one spouse’s name from the mortgage, and one or both may benefit from the ability to borrow cash from the home equity.
What happens if I can’t refinance after divorce?
You have options. If you can’t afford to refinance the home after divorce, or you have trouble meeting lenders’ requirements, here are some recommendations:
- It may be possible to negotiate the mortgage terms with the lender, or ask if you qualify for income-based loan programs. Also, it may be possible several months after the divorce for alimony or child support payments to be considered as qualifying income if certain requirements are met.
- You can sell the home outright and divide the equity with your ex-spouse This may not always result in a 50-50 split; the terms outlined in the divorce decree for the division of marital property will likewise determine the proportion used for dividing equity from the sale of the marital home.
- Maybe you’ve wondered how to keep the house in divorce without refinancing. If it’s affordable, you may be able to buy out your spouse’s share of the equity in your home. Your divorce attorney can advise you on how to remove your ex-spouse from the deed and assist you in this process.
Ideally, in all phases of a separation and divorce, productive communication and cooperation between both parties can make the process smoother and less stressful for the family. In reality, though, some divorcing couples will experience a breakdown in communication or disagreements about dividing marital property. That’s why it’s imperative to get sound, professional legal and financial advice. Your mortgage lender can guide you as you or your ex-spouse refinance your home after divorce, and your divorce attorney will be able to assist you if you encounter any obstacles along the way.
If your ex-spouse is obligated to refinance your home after divorce, but has not done so, the attorneys at DeTorres & DeGeorge can help. Contact us today to schedule a consultation. We are here to answer your questions about dividing marital assets and debts and to provide skilled legal representation for your divorce.
