For many divorcing couples, their home is the biggest asset to be split -- and the biggest debt. Even spouses who can agree on how to divide the home often struggle with putting their plan in place because lenders get a say in what happens, too. It is relatively simple to remove your name from the title to the property, but you will have to deal with your lender to get released from the mortgage as well.
Release of Liability
To be released from your liability on the mortgage, your lender must remove your name from the mortgage. This can be as simple as obtaining a release of liability from your lender. In this document, your lender agrees to release you from the mortgage because of your divorce. However, lenders are not required to issue such releases, even in divorce cases, so a release may not be an option for you. For example, your lender is less likely to want to release you from liability if your spouse’s credit is bad or your spouse does not have enough income to make the mortgage payments.
If your lender will not provide a release of liability, your only option may be to refinance the mortgage. This can cost several thousands of dollars, even if the refinance is due to divorce, and it may not be an option at all if you are underwater on your home, owing more than it is worth in the current market. The spouse who is assuming the mortgage debt must be the one to refinance since the mortgage is going into her name, and she must independently qualify for the mortgage. Thus, she must have good enough credit for the lender to want to loan money to her and she must be able to make the mortgage payments.
Selling the House
For some couples, selling the house is the best option, especially if neither spouse can afford the mortgage payments on his own. By selling, spouses can pay off the existing debt on the property and split any proceeds from the sale. If you and your spouse plan to sell your home, you may benefit from a written agreement detailing how you plan to split any costs of the sale, particularly if you will have to bring money to the closing because you owe more on your mortgage than the sales price of the house.
Divorce decrees, issued by the court at the end of the divorce process, typically split all your property. If you and your spouse agree on how to split it, the court may adopt that split or, if you cannot agree, the court decides how to split it. However, the divorce decree is not binding on your lender, meaning the lender retains his right to hold both spouses liable for the mortgage debt as long as both names are on the mortgage, even if the divorce decree says you or your spouse is to be released from the mortgage. However, you could sue your spouse if he fails to do what the divorce decree says he must do with regard to your mortgage.
Like your divorce decree, a quitclaim deed does not release you or your spouse from your legal responsibility to pay the mortgage. Instead, quitclaim deeds merely transfer ownership rights to the property. For example, if you sign a quitclaim deed giving your spouse ownership of the property, you remain liable for the mortgage even though you no longer own the property.