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After a couple divorce, who should pay the mortgage?

It’s more than likely your biggest asset so, if you and your spouse are separating or divorcing, you’re probably concerned about what’s going to happen to your home. During what is already a very difficult period, such concerns can bring about discomfort and anxiety. In fact, our team are contacted by people who, having made the decision to divorce/separate, want to know which party will be responsible for paying the mortgage on a daily basis. In each instance, these queries are met with the same response:

Do you have a joint mortgage?

As mortgage applications are far more likely to be approved if they are made jointly by both parties, the majority of couples apply for and are granted joint mortgages. Both are therefore responsible for ensuring that the mortgage is paid; this does not change because one person leaves the property.

It’s becoming increasingly common for couples to separate but remain in the matrimonial home and, when such circumstances apply, both parties will have sufficient reason to continue to pay their share of the mortgage. When one leaves, however, that person is often reluctant to pay for a property they no longer live in. If the remaining party can afford the monthly payments, then this is – whilst certainly irritating – not going to result in their eviction. If they cannot, however, this can lead to a significant problem that will adversely affect both parties long-term.

As we’ve stated previously, both parties are responsible for ensuring their mortgage is paid in-full and on-time and their credit ratings will suffer if payments are missed. They may even find that their lender takes them to court to try and retrieve any money they are owed.

If the non-resident party are unwilling to pay their share of the mortgage, we’d strongly recommend that the lender is informed of this and a ‘payment holiday’ requested. This will buy both parties some time to negotiate and arrive at a conclusion that works for everyone.

What you can do with your home/mortgage when getting a divorce

After a couple separate, there are a number of things that they can choose to do with the matrimonial home. These include:

  1. Sell it

If the couple opt to sell the property, they can divide the equity after they’ve paid off what was left of the mortgage.

This is a straightforward solution but, thanks to things like estate agent’s fees, it’s not cost-effective. It’s also highly-disruptive for children.

  1. Transfer the mortgage to one party

Should a couple agree on who’ll live in the property, the residing spouse can pay their husband/wife a lump sum for their share of the home and request that their lender remove this party from the mortgage.

Before doing this, it’s vital that the relevant individual ensure that they’ll be able to afford the monthly payments and their other expenses. Failing to do so can, and has, caused many people significant problems.

If the lender deems transferring the mortgage to just one party to be too risky, then a guarantor mortgage could be the answer. With these mortgages, a close relative or even former spouse guarantees that they’ll pay the mortgage if the holder finds themselves unable to. Whilst this’ll significantly increase the likelihood of a lender transferring a mortgage to one party, though, the guarantor will certainly be taking a considerable risk and a better option could be:

  1. The non-resident spouse continues to pay the mortgage

Now, this may sound unappealing but bear with us for just a moment; we’re not suggesting that the non-resident spouse continue to pay the mortgage indefinitely and for no reason. Instead, they can continue to pay the entirety or a portion of the monthly fee in exchange for a share of the property’s equity. This can – and really should – be accompanied by a Clean Break Order that states what percentage of equity they’ll have, as well as a deadline for the property to be placed on the market by way of a guarantee.

  1. Pay off the mortgage

Again, this one might sound nonsensical but, if the mortgage could be paid off in a few years, both parties should continue to pay it as normal. This would need to be combined with a Clean Break Order specifying what percentage of the home both spouses would have and whether it would be sold at a later date and the proceeds divided, or whether one party will instead purchase the others share. 

How to deal with negative equity when divorcing

Negative equity, which occurs when the value of a home is less than the amount owed to a lender, makes it virtually impossible to sell a property and pay off the remaining mortgage with the proceeds.

Under such circumstances, it can make sense for both parties to continue to pay the mortgage even if one no longer lives in the property. If the value of the property has diminished due to a slump in property values, continuing to pay the mortgage until the market recovers can make fiscal sense. A Clean Break Order stating when the property should be sold and how the proceeds will be divided should be obtained, however.

What if you can’t agree on what to do with your home after divorce

Couples that are able to agree on what they’ll do with the family home after they separate will enjoy several benefits, chief amongst which are significantly smaller legal bills and less conflict. If an agreement cannot be reached, however, then both spouses should seek legal advice. It will cost them but, ultimately, it’ll will be money well spent.

Conclusion

The person or persons named on the relevant mortgage will be responsible for ensuring that it is paid irrespective of whether they reside at the relevant property or not.

Beyond this, deciding on what to do with their home following a divorce is a task that most separating couples find to be problematic – but there are a number of options available to them.

The best course of action will be determined by the couple’s circumstances and, whilst it’s always recommended that they try and reach a decision without a solicitor, it’s advisable that they do if negotiations get difficult.

More often than not, a couple’s home is their biggest financial asset and it’s vital that what they do with their home during a divorce is fair and meets the needs of both parties as much as possible.

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