Should You Refinance After Divorce?

Handling a marital home during and after divorce poses serious challenges that couples often underestimate. To protect their interests and future credit ratings, it is important for both partners to understand their obligations and requirements.

Divorce attorneys are often asked whether it is a good idea to refinance after a divorce. To answer that question, you need to look at the big picture. Remember that even if one spouse owned the house before the marriage, the other spouse may still have acquired an ownership interest in the property during the course of the marriage.

Mortgage Obligations are Separate from Property Deeds

When one partner decides to keep a jointly-owned home, the other partner often assumes that all they need to do is file a quit claim deed. That takes their name off the title to the property. 

They assume they are no longer liable in connection with the home. However, until they take steps to take their name off the mortgage, they remain liable for that debt. 

If you want to be free from the obligations on the home, you need to get your name off the mortgage. Even if you are divorced and your divorce agreement specifies that your ex is liable for the debt, the bank could still come after you if they default on the loan.  

Of course, removing your name from the mortgage is not enough either. You need to get your name off the deed to avoid liability for unpaid taxes or issues associated with failure to maintain the property.

Refinancing is Often the Best Way to Remove One Spouse from the Mortgage

Generally, to get your name off the mortgage, you need to pay it off. This can be done by selling the property to pay off the loan.

If one spouse wants to keep the home, they can refinance the loan to take out a mortgage in their own name. As part of the process, the earlier mortgage is paid off, and a new one is created. That spouse must be able to qualify for a new mortgage, so the first question to ask is not “should you refinance” but “can you refinance?”

Steps to Transfer Ownership of the Marital Home

If one spouse can qualify for a mortgage, either on their own or with a co-signer, then the first step to transfer the home is to determine the fair market value. Unlike some other jurisdictions, Massachusetts does not have set rules for determining the date that assets should be valued. Your attorney should be prepared to argue for a valuation date and amount that supports your interests.

The next step is to contact the lender to get a “payoff quote” to determine exactly how much is owed on the loan. Subtracting that amount gives you the value of shared equity in the property. Then, either through negotiation or court determination, ascertain how much of that equity belongs to each partner. The partner keeping the home takes money from their share of equity to buy out the other partner’s share. Then it’s time to remove that partner’s name from the deed and confirm that the refinancing process has removed them from the mortgage.

An Experienced Divorce Lawyer Can Negotiate to Protect Your Interests in Your Home

Whether you want to keep the house or get your fair share of equity cash, working with a knowledgeable divorce lawyer is the best way to achieve your objectives. At Koiles Pratt Family Law Group, we understand how to protect your interests and fight to get the results you deserve. Contact us today to learn how we could assist in your case.