If you are going through a divorce one of the most important steps is sorting out the finances. It is often the case that one of the main parts of the settlement is who will get to keep the house.
So how is that decision reached? What happens with the remaining mortgage payments? And once it has been determined by all parties involved and that reconciliation is irretrievable, what happens to the mortgage?
Who is liable for the mortgage?If you and your partner have applied for a joint mortgage (as most married couples do), the property will most likely be held in both of your names.
In this particular case, both involved parties will be responsible for the mortgage – and either one of you could be held liable for the payment of the mortgage regardless of whether you are currently living in the property.
If you fall behind with the mortgage payments the lender can pursue either one of you for the outstanding payments. Missing mortgage payments will also have an impact on your credit rating and affect your chances of buying another property or obtaining a new mortgage.
As part of the settlement the courts may decide that one party has to pay spousal maintenance, and this can include the cost of mortgage repayments whenever a final settlement is agreed upon.
The division of assetsThe majority of divorce cases are settled amicably out of court which considerably reduces the legal costs and time involved. If the case needs to be referred to a court of law, a judge will assess each case differently depending on the situation. However, generally speaking, if there are children involved, usually the person that has the primary custody of the children will also be awarded the house and the person who does not will be asked to move out by the judge.
The property will also need to be valued for the settlement. This figure can either be reached amicably by the couple, or failing that a qualified surveyor can carry out a valuation.
Paying off the mortgageMortgages are usually paid from a joint account which both parties pay into on a monthly basis. Therefore all bills are usually split equally. But what happens when the couple’s romantic situation reaches breaking point?
If a financial settlement cannot be agreed in the event of divorce proceedings the courts may need to be involved. Usually if the house is in joint names, with no children or significant one-sided wealth involved, the equity is split 50/50.
Another thing to be aware of is the effect of missed payments on your credit score. Joint accounts do mean that your credit rating is associated with that of your partner, so if either party defaults on mortgage payments during the divorce process this could end up adversely affecting the credit score of both parties in the long run.
A bad credit rating could prevent you from accessing whole host of financial products in the future, including a mortgage on a new property.
“This will pretty much prevent you from borrowing in this market,” says one of our brokers, David Hollingworth.
Usually, as part of your financial settlement either you or your ex-partner will become the sole owner of the property. The other party will be removed from the title deeds and the remaining party will take sole responsibility of the mortgage and all of the bills. If you are looking to take the mortgage over it’s worth bearing in mind that you will need to be able to afford the mortgage in your own right, and your current lender or any new lender will need to assess your financial situation before granting you the mortgage in your own name. See our remortgages rates for information on current deals or to read more about the remortgaging process see our remortgage guides.
Additional costsWhatever happens with the mortgage, if you are the one taking on the sole responsibility it’s very important not to let the payments slip into arrears or you may run the risk having your home repossessed.
If you are currently going through a divorce with your partner, you may need to tell:
- your mortgage lender
- your housing benefit office
- your council tax office
- gas, electricity and telephone companies
- your tax office, particularly if you're getting tax credits
- the bank
- any companies that you have finance with
- insurance companies
- the post office, if you want mail redirected
- your dentist and doctor