Updated: Nov 13, 2021
It's understandable that we would seek to minimize change in a divorce
As a single mom and a parent that has gone through a #divorce with young children. I can understand the desire of parents to want to keep the home environment as stable as possible for the children. They want to limit change and disruption during a time of upheaval. And for many couples this involves one parent staying in the marital home. But there are other options as well.
I can count on more than one hand, how many “out-spouses” are dealing with the following predicament...
I’m not saying this is right or wrong, but I do believe there are better ways of making this happen.
Let’s outline the scenario
In the last 6 months. I can count on more than one hand, how many “out-spouses” are dealing with the following predicament
Spouse 1 & 2 are both on the mortgage and deed. Or maybe only Spouse 2 is on the mortgage. Spouse 1 stays in the home and promises in the divorce settlement to refinance the home or sell within a specific time period (let’s say 2 years), if a refinance cannot be obtained. No conditions about late payments, expenses in the home or who pays the attorneys costs when Spouse 2 takes Spouse 1 to court for non-compliance of agreed upon terms. In the interim, Spouse 2 removes their name from the home title/deed while staying on the mortgage. In many cases, this is done because they received a buyout settlement from Spouse 1 for a portion of the home’s equity.
Titling and Credit are NOT the Same.
There is no real compelling reason to refinance since they now own the property outright.
I just don’t understand (in today’s world) what professional; tax adviser, financial adviser, mediator or attorney would agree, suggest, or support the idea of a client giving up title (ownership) to a property with no guarantee that it will ever be refinanced or sold, and allow themselves to be held financially responsible for the debt. Where is the incentive for Spouse 1 to refinance? There is no real compelling reason to refinance since they now own the property outright.
However, if Spouse 2 has the financial resources to buy another property (or anything else they want) while already obligated on mortgage #1, and is OK with what "could" happen, then great. But this never seems the case. Spouse 2 is unaware of this potentially flawed plan and its consequences and believes the home will be sold within the time frame agreed upon, their credit will remain unblemished, and they can buy their own home sometime soon. I wouldn’t hold my breadth on that one. It seems to go wrong much more than it plays out fairly.
Just File a Contempt Motion
This not easy and can be costly.
Oh, but “they can file a contempt motion!”, you say. “Just bring Spouse 1 to court to force them to sell”. Well that doesn’t happen without time or money, and I have heard too many horror stories of how Spouse 1 is allowed to stay in the home, not refinance, not make payments, and ruin the credit of Spouse 2.
I actually know first hand that this “contempt” angle is flawed, as it happened to me. This not easy and can be costly. Even though I was still on the deed in this case, I wound up walking away from my home and a considerable amount of equity because I was unwilling to spend more money and needed to end the emotional toll it was taking on my children and I.
Here's a Real Example of What Can Happen
In one case, I recently heard, Spouse 1 was able to refinance the mortgage with Spouse 2’s Name on the new mortgage WITHOUT Spouse 2 ever signing a single document with a well known bank. Spouse 1 never made a payment and it took almost about 6 years to force the home sale in a foreclosure. During which time, a contempt order was filed and the judge repeatedly allowed Spouse 1 to get away with not refinancing and the bank would not speak to Spouse 2 on selling the home, because Spouse 2 was not on the title. The bank didn’t care that Spouse 2 was on the mortgage except to constantly harass Spouse 2 for unpaid mortgage payments. Consequently Spouse 2 cannot obtain a mortgage on a new home and their credit history will be ruined for some time.
So remember, it doesn’t really matter what your divorce settlement says about a creditor (although more detail on contingencies the better), title is ownership, not debt obligation. If you are on the mortgage debt, the bank/creditor does not care that you are not on the title, you are still on the hook for payment.
Selling now, splitting the profit/costs and moving on may make more sense for families in the long run because of these protracted issues and increased stress. Work with a professional to help determine what makes sense in your articular situation.
This information is not meant to be construed as financial, tax, or law advice. Always speak with a professional in the applicable area of expertise to address you specific situation and concerns