Divorce is one of life’s most emotionally and financially challenging experiences. Among the many decisions that must be made, one of the most significant involves the marital home and mortgage. Who stays in the home? Who continues to pay the mortgage? What are the legal and financial implications?
At SmartKey Lending, we understand the complexity of navigating mortgage-related decisions during divorce. This blog provides a comprehensive look into how divorce affects homeownership and mortgage responsibilities, and what options are available to help individuals protect their credit, assets, and future.
1. Understanding Ownership: Who Owns the Home?
Before making any decisions, it’s important to determine how the property is titled:
Joint Tenancy with Right of Survivorship: Both spouses own the property equally, and if one dies, the other automatically inherits it.
Tenancy in Common: Each spouse owns a percentage (which may not be equal), and can will their share to someone else.
Sole Ownership: One spouse is the legal owner.
In many divorces, the home is jointly owned, which means both parties have a claim. This can complicate decisions about who stays in the home or whether it should be sold.
2. Mortgage Liability: Who’s Responsible for the Loan?
Even if one spouse moves out, both remain legally responsible for the mortgage if both names are on the loan. Divorce does not release a party from mortgage obligations unless specific actions are taken:
Refinancing the mortgage into one spouse’s name
Selling the home and paying off the mortgage
Assumption of mortgage, if the lender allows it
It’s crucial to understand that even if a divorce decree says one person is responsible for the mortgage, both names on the loan are still liable in the eyes of the lender until changes are made.
3. Mortgage Options After Divorce
Divorcing couples have several options when it comes to handling their mortgage:
Option 1: One Spouse Keeps the Home
This is common when children are involved and one spouse wants to maintain stability. The spouse keeping the home must typically refinance the mortgage solely in their name.
Pros:
Stability for children
Potential to keep property equity
Cons:
Qualifying for a mortgage on one income
Responsibility for taxes, insurance, and maintenance
Option 2: Sell the Home
Many couples choose to sell the property, pay off the mortgage, and divide the proceeds. This is often the cleanest solution.
Pros:
No lingering joint debt
Each party can move forward independently
Cons:
Possible loss if the market is down
Emotional difficulty parting with the home
Option 3: Co-Own the Home Temporarily
Some couples agree to keep the home jointly owned for a certain period (e.g., until the kids graduate high school).
Pros:
Continuity for the family
More time to make a decision
Cons:
Ongoing joint financial responsibility
Potential for disputes
4. Impact on Credit Scores
Divorce itself does not affect your credit score. However, missed mortgage payments due to disagreements or financial strain can.
If both names remain on the loan and payments aren’t made on time, both credit scores will suffer, regardless of the divorce decree. That’s why it’s essential to either:
Remove one party from the mortgage, or
Ensure both parties remain committed to making payments
SmartKey Lending Tip: Work with a mortgage advisor early in the process to explore refinance options and protect your credit standing.
5. Alimony, Child Support, and Mortgage Qualification
If you plan to refinance or purchase a new home post-divorce, your debt-to-income (DTI) ratio becomes critical.
Alimony or child support received can sometimes count as income, if it’s consistent and court-ordered.
Alimony or child support paid will count as debt against your DTI.
Lenders usually want to see 6–12 months of consistent payments or receipts to include them in qualification. Discuss your options with a SmartKey Lending professional to determine what documentation is needed.
6. Using a Quitclaim Deed
A quitclaim deed is often used in divorce to transfer ownership from one spouse to the other. However, it’s important to note:
A quitclaim deed changes ownership, but NOT mortgage liability.
Even if one party signs over the house, they’re still liable for the mortgage unless the loan is refinanced. Never sign a quitclaim deed without ensuring the mortgage is addressed appropriately.
7. Tax Implications of Selling the Home
There are potential capital gains tax exemptions when selling a primary residence:
$250,000 exemption for single filers
$500,000 exemption for married couples filing jointly
These benefits apply if the home has been your primary residence for at least two of the last five years. Post-divorce, each spouse may still be able to claim the $250,000 exemption if certain conditions are met. Consult a tax advisor to understand your specific situation.
8. Buying a New Home After Divorce
Many newly single individuals are ready for a fresh start—and that includes buying a new home. Here’s what to prepare:
Rebuild or maintain strong credit
Document your income clearly
Manage debt responsibly
Save for a down payment
At SmartKey Lending, we work with recently divorced clients to help them rebuild eligibility and qualify for a new mortgage. Whether you’re a first-time buyer or purchasing again, we’ll help you find the right path forward.
9. Seeking Legal and Financial Advice
Divorce touches on legal, emotional, and financial matters. Be sure to:
Consult a divorce attorney with real estate experience
Work with a financial advisor or CPA
Speak with a mortgage loan officer to plan your next steps
These professionals will ensure your interests are protected and help you make informed decisions that affect your future.
Final Thoughts
Divorce is never easy, but with the right planning and professional support, you can emerge with your finances—and your homeownership goals—intact. Whether you’re considering keeping the marital home, selling, or starting fresh, SmartKey Lending is here to provide clear, compassionate, and strategic mortgage guidance.
