When you contract for a mortgage, there are only two ways to eliminate your responsibility for paying it: you can refinance it into someone else’s name or you can pay it off outright. Either way, your responsibility ends when the lender gets its money. Both options are possible – and advisable – when you divorce.
Community Property Factors
California is a community property state, which means that you and your spouse have an equal interest in any property acquired during the marriage, as well as equal liability for all debts incurred during this time, including your mortgage. Even if your spouse already owned the house before you married, you may be entitled to some portion of its value if you used marital income to pay the mortgage because your earnings are community property, too. If the mortgage was taken out during your marriage, it’s a joint debt under community property law even if it’s only in one spouse’s name. The lender has two people on the hook for paying it and won’t write off your responsibility for doing so just because you’ve divorced, even if your eventual decree ends up assigning payment of the mortgage solely to your spouse. The terms of your decree are not binding on your creditors, so you’re still responsible for making the mortgage payments as long as the loan exists.
Preservation of Marital Property
California law requires that the marital status quo must be maintained when you file for divorce until your divorce is final. An automatic temporary restraining order goes into effect as soon as one of you files and serves the other with a copy of the paperwork. This ATRO effectively freezes things in place until issues of property, debts and custody are sorted out. The law preserves the marital home so it can be dealt with fairly as part of the proceedings. You can’t sell the property without the express permission of the court and you can’t further encumber it by taking out a second mortgage or home equity loan against it. You must keep the mortgage payments current, as the court doesn’t want to see the property lost to foreclosure before your marital knot is untied.
Refinancing the Property
If your spouse is keeping the property in the divorce, your responsibility for the mortgage depends on your spouse doing something, not you. She must refinance the existing loan. This typically involves borrowing enough on a new loan to satisfy the old mortgage and pay you your community property share of the equity as well. When she refinances, the old mortgage -- the one for which you were liable -- is eliminated and your responsibility for making the payments likewise ends. In conjunction with the refinance, you would relinquish your ownership interest in the house, typically by signing it over to your soon-to-be ex in a quitclaim deed. If you sign the deed before she refinances the mortgage, you’ll give away your ownership interest while you’re still legally responsible for paying for the property. If she refinances first, she takes full responsibility for the debt, but she doesn’t own the entirety of the property until you sign the quitclaim deed. A common solution to this problem is to sign the deed at the time she closes on the loan.
Paying Off the Mortgage
If your spouse doesn't refinance, the only other way to relieve yourself of responsibility for the mortgage is to pay the loan off. You and your spouse might agree to sell the property, satisfying the mortgage and sharing in the proceeds. If you have sufficient other assets that you can liquidate, you might want to use the money you get from liquidating those assets to pay off the loan. If your spouse is keeping the home, however, you have the problem of balancing the scale so that you receive something equal in value to your share of the equity, which she would retain. If you would need to liquidate all other assets to pay off the mortgage, this might not be possible.