With every mortgage payment, homeowners accrue equity. Over many years, property improvements and mortgage payments can combine to create a significant amount of home equity. When spouses who own a home together decide to divorce, they must address their home equity or include it in the inventory of marital property for a judge to divide.
Must a spouse hoping to keep their home refinance their mortgage on the property as part of the divorce process?
Refinancing is typically necessary
Much of the time, both spouses are co-borrowers on the mortgage. Refinancing is therefore necessary to remove one spouse from the mortgage note and also the title for the property. In some cases, spouses choose to withdraw equity as a means of directly compensating for home value.
However, there are scenarios in which refinancing can be challenging or problematic. High interest rates, credit issues and even the inability to afford a higher monthly payment after withdrawing equity may influence how spouses handle a mortgage when they divorce.
Spouses sometimes reach agreements that may delay refinancing until circumstances are more favorable. Even when refinancing, withdrawing equity is not always necessary. The spouse staying in the marital home may sometimes be able to use other marital property or responsibility for marital debts to compensate their spouse for their share of home equity.
Joint home ownership creates numerous unique issues for spouses to address as they begin negotiating property division terms for a divorce. Having support while evaluating different options can be beneficial for those who want to better ensure that they receive compensation for their share of home equity.
