How a Divorce Affects a Joint Mortgage

Joint mortgage loans allow two people to share the burden of paying off a home loan. These loans are usually used by married couples who purchase and live in a home together. Applying jointly allows them to factor in two incomes when listing their ability to pay on a mortgage application. In this way, the couple can increase the size of the mortgage they can be approved for, gaining them the opportunity to buy a larger and more expensive home.

Who Owns the Home in a Joint Mortgage?

Even though the responsibility to pay the mortgage debt is shared in a joint mortgage, the ownership of the home is not necessarily split evenly. It is possible for one person to have the home deed assigned to them while both parties are assuming the debt. You will have to make this arrangement during your loan origination discussions and home purchase discussions. Both parties should agree to how the home ownership will be determined and shared. The laws of your state will govern how communal property can be treated during a marriage and in divorce proceedings, if necessary.

How Is Shared Debt Resolved?

If the two parties on a mortgage loan do not finish paying off the loan prior to a divorce, they will be splitting shared debt. Shared debt means they are both obligated to continue making the payments according to schedule. If a mortgage payment goes delinquent or the mortgage defaults, the action will affect the credit of both parties negatively. The two borrowers can arrange to split the debt and exit the mortgage if they wish to do so. In order to exit the mortgage before it matures, both parties will have to enter loan modification discussions. They may either elect to pay off the loan with a lump debt settlement. This usually occurs if the couple has chosen to sell the home. If one person will continue living in the home, then the mortgage will have to be restructured to reflect that person is the sole owner and sole borrower moving forward. The other party is released of obligation to make payments toward the mortgage. That person's credit will reflect the loan was closed in a satisfactory manner.

How is Shared Equity Resolved?

Shared equity means the parties have paid off the mortgage debt and now have joint ownership of an asset. In this case, they will be splitting positive financial gains instead of debt payments. One party may wish to continue living in the home. This can be decided through divorce proceedings. It is also possible for the party to pay off a portion of the equity to the other person, basically buying the other half of the home. The parties may also choose to sell the home after divorce, splitting the equity in a way determined satisfactory by both parties and the court. Again, the common property laws of the state you live in will govern how equity is divided following a divorce. In some states, there is a mandatory fifty-fifty split in the absence of any other contractual agreement.