Can You Keep a Joint Mortgage after Divorce?
- Sharing a mortgage: how it works
- Pros and cons of keeping the mortgage
- Why should you share?
- What else can you try?
When you purchased your home with your spouse, you both submitted to a credit check, got approval, and signed paperwork. Your home loan doesn’t automatically dissolve after divorce. And sometimes, sharing the obligation remains your smartest financial move.
Keeping a joint mortgage after divorce requires communication and commitment. Risks are involved. But in some cases, a short-term share could come with long-term gains.
Sharing a mortgage: How it works
In a typical shared mortgage arrangement, one divorced person continues to live in the home while the other considers the property an investment. Both people contribute to the mortgage payments as they did while married.
You must spell out this arrangement in your divorce documents. Sometimes, couples put a time limit on the share to make sure they’re not stuck with the mortgage for too long. Others specify some other trigger (like a mortgage percentage rate or housing market availability) that would prompt a discussion about selling.
Pros and cons of keeping the mortgage
Like all financial decisions, opting to share a mortgage comes with benefits and drawbacks. Understanding what they are can help you make a smart choice.
Benefits of sharing
If you choose to keep your mortgage in place, your children could stay in the home they're accustomed to, remain friends with the neighbors, and attend the same school. Some parents use so-called birdnesting plans, or nesting arrangements, where the parents rotate living in the home while the kids stay put. If you're concerned about consistency for your children, sharing could be smart.
Other benefits include the following:
- Potential income: Instead of living in the home, you could rent it and offer income to both parties in the divorce. The value of the home will likely increase over time, making it a good investment for both parties.
- Risk reduction: If you live in a swamped housing market, holding onto the home could ensure you don't sell at an inopportune time.
- Bargaining power: Some people form deep emotional ties to their home, and they'd do anything to keep it. If you want something else in the divorce (like full access to your retirement account), maintaining the mortgage until your partner can buy you out could be smart.
Drawbacks of sharing
Maintaining a joint mortgage isn't always the best idea. These known drawbacks could keep you from sharing:
- Mortgage difficulties: If you move out, you must find another home. Your name remains on the original mortgage, so your debt-to-income ratio could be too skewed to allow you to qualify to borrow more money. You could be stuck renting until the original home sells.
- Yearly tax conversations: About 90% of taxpayers take standard deductions. But if you want to itemize your taxes for a bigger break, you must work with your spouse on those calculations. These can be fraught discussions, especially if one party wants to itemize and the other does not.
- Continued connection: Sharing a joint asset means discussing how it must be maintained. If one person lives in the home and something major (and valuable) breaks, you’d have to discuss a joint fix. Every issue with the house would involve a conversation with your ex. If you want to steer clear of your ex, sharing an investment makes that tough.
Why should you share?
While maintaining a mortgage comes with risks and benefits, three potential scenarios make sharing the best choice for most people. Those scenarios include the following.
Shared children are comfortable at home
If the children you share are deeply connected to their homes, school, and neighborhood, sharing the mortgage could keep them in place during your divorce. Consistency could be important to their mental health.
You have favorable mortgage terms
Mortgage rates vary widely. In 2021, most loans came with interest rates lower than 3%. In 2022, interest rates rose above 7%. If you consider your home an investment, refinancing to a new product could cost you profits.
Sharing your home while watching interest rates could ensure you don't waste money. When rates drop low enough for one person to refinance wisely, your period of joint ownership could end.
You don't have enough equity
A little more than 3% of people who bought homes during the pandemic might have underwater mortgages in 2023. If you owe more than your home is worth, selling it means paying a hefty bill during your divorce – and you might not have enough money to do that. Sharing the mortgage until your housing market improves and your home is worth more could help you protect your investment.
What else can you try?
If sharing a mortgage isn't right for you, two other options exist.
You could sell the home and split the proceeds of the sale. If you have enough equity or a robust housing market, this move could help you make a clean break during your divorce.
If you can cover the mortgage without your spouse's contribution, you could refinance the loan and buy out your spouse. This option allows you to keep the home on your own without your partner's input. If your finances allow it, this is another way to make a clean break from your partner and accomplish your goals with the house.
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References'Birdnesting' Gives Kids One Stable Home After a Divorce. Does It Work? (November 2018). NBC.
The IRS Has Supersized Standard Deductions for 2023. Is That Good for Your Taxes? (March 2023). Forbes.
Living Arrangements of Children: 2019. (February 2022). United States Census Bureau.
Latest Mortgage News: Mortgage Rates Unchanged as Fed Stays Course. (March 2023). Bankrate.
Just 3 in 100 Pandemic Homebuyers Would Fall Underwater with Next Year's Projected 4% Home Value Decline. (December 2022). Redfin.