Who Pays for a Joint Mortgage Loan after a Separation?

A joint mortgage loan is a deed shared by two people, traditionally two spouses. This option provides a number of benefits including the ability to combine incomes for a larger mortgage limit. However, if the two people terminate their living arrangement or marriage, the joint debt can become complicated. There are a number of ways to handle the debt, though few of them are simple.

Prenuptial Agreements

The best way to handle the problems that arise with a joint mortgage after separation is to handle them before they happen. Once you are in the middle of a separation, it can be difficult to clearly choose the best financial and personal options. It is best to handle everything upfront. Your loan contract can include a separation section that details who will take over the mortgage or how it will be handled. It is also possible to address this issue with a prenuptial agreement. Many people think prenuptial agreements only detail how an estate will be divided in a divorce; in reality, they can address how debts will be distributed as well. 

Splitting the Debt or Equity

If you owe more on your home than you have in equity, you will be splitting the debt in the case of a separation. There are a few ways to handle this. One way is to sell the home, pay the mortgage, and split any portion of the remaining debt that may be owed. How you split the debt is an issue typically handled in court. If you have paid off the vast majority of the mortgage, you and your previous spouse have quite a bit of equity in the home. In this case, you can opt to use that equity as part of a court settlement when you divide your assets. You can also opt to sell the home, pay off the mortgage and split profits between the two of you.

Settling in Court

In either case, whether you are splitting debt or equity, it may not matter who did what in the past in the eyes of the court. Some people will want to argue that they made the majority of mortgage payments, and they should therefore get more equity. Others may say their spouse racked up the majority of the debt, so they should not be responsible for payments. Though each state sets unique rules in how these issues are handled, most states do not distinguish between the contributions of two parties to communal debts or communal assets. This means you will have to raise the issue in court and attempt to determine how the debt and equity can be fairly split. You and your ex-spouse will not be the ones deciding this in most cases, though you will get your chance to argue your point. Ultimately, a judge will have to determine who will shoulder the burden of the mortgage. If one person is going to remain in the home, then that person is typically responsible for continuing the mortgage payments in the future.