Your Spouse wants the house – What if you are the only one on the Mortgage?

A common dilemma for many divorcing couples is how to handle the house.  In most cases, this is the largest asset that must be divided, and the mortgage is often the largest debt to be divided.  With the recent housing bubble, many couples have seen their house plummet in value, leading to decreased equity and further debate among who should take the house.  Making the situation even more difficult is the fact that it can sometimes be difficult to refinance the mortgage, and/or take one parties name off the mortgage after the divorce.

Luckily, in North Carolina, we did not see a huge run-up in housing prices, thus when the real estate market crashed in other areas of the country, we saw only a modest drop off, and sales are already starting to pick up in 2010.  In general, I advise my clients to make sure that if they are going  to give the house to their spouse in the divorce, they should make sure  to get their name off the mortgage.  The reason for this is that if the spouse defaults on the payments, the lender can come after you for any money owed, not to mention you will see a serious hit to your credit score.  This is easier said than done,  especially where you might be the only wage earner or your spouse was never listed on the mortgage in the first place.  With increased lending standards and regulations, it is now more difficult than ever to get a mortgage.

The bottom line is that you cannot force your spouse to move out of the house or sell the house without court intervention.  How you divide the house will have an impact on a number of other aspects of your divorce – how you divide other property and debts, the  potential payment of alimony/spousal support, who is going to have  custody of the kids (if you have children), etc.  In addition, there could be tax consequences as well.

Whatever you do, if you are going to give the house to your spouse in the divorce, make sure that there is a mechanism in place to get your name off the mortgage.  If you can’t do this, then you may have to resort to Plan B.