Dividing ownership of property and assigning debt is an important part of the divorce process. However, if a spouse dies before a divorce can be finalized, the marriage cannot legally be dissolved and asset division does not occur. Instead, determining home ownership and the responsibility for any liens on the property, including mortgages, will depend on how title was held at the time of death.
Importance of Timing
As part of divorce, most states divide marital property equally between parties or according to what is deemed fair after considering several factors. However, the death of a spouse before a divorce is final effectively removes the power of the court to allocate property and debt. While this could result in a windfall of property to the surviving spouse, any debt associated with a particular asset will also pass. This could potentially produce a scenario of ownership very different than what would have occurred had the deceased spouse survived the divorce.
In determining whether you will be responsible for a mortgage upon the death of your spouse, how title is held on any real property owned during the marriage becomes important. Two common types of home ownership are a joint tenancy with a right of survivorship and a tenancy by the entirety. Both forms of ownership are largely the same, with the latter only available if the parties were married at the time of conveyance. In either case, upon the death of your spouse, ownership in the home passes directly to you in full. Because you are now the sole owner, any debt tied to the property automatically becomes your responsibility, including mortgages.
Tenancy in Common
By contrast, if your spouse dies before the divorce is final and title to your home is held with your spouse as tenants-in-common, your responsibility for the mortgage will be limited to the proportion of your ownership share. An example would be splitting ownership 50/50 with your spouse as tenants-in-common. Upon the death of your spouse, 50 percent of the property would pass to you automatically and the other 50 percent would pass according to your spouse's will or by state intestacy laws if no will is present. If your spouse's shares pass to someone else, such as to his children, you would only be responsible for one-half of any mortgage payments.
Mortgages often have what are known as due-on-sale clauses written into them. This means that if a home is sold, the former owners would be responsible for paying the remaining loan balance immediately. However, under federal law, these clauses do not apply to transfers of ownership between spouses upon death. This means that you would only be responsible for continuing to make payments in proportion to your ownership interest. But, because death can significantly reduce household income, it is not uncommon for the surviving spouse to lack sufficient resources to stay consistent on payments. In these scenarios, mortgage insurance, which is often required if you borrow more than 80 percent of the value of your home, can help you avoid owing the lender after a default. Other options include attempting to sell the home or refinance it with the lender.