Dividing the House at the time of Divorce: Protect Your Credit
Division of assets and debts at the time of divorce can be a tricky matter in the current economy. Many assets don't have the value they once had, debts are higher and there are more of them, and some assets have negative value, especially many Nevada homes.
Nevada is a community property state. This means that all community assets and debts will essentially be split 50/50. Any assets and debts acquired during the course of a marriage are subject to this equal split upon divorce. Most of the time, the home the married couple lives in was acquired during the course of the marriage and is therefore subject to a split.
Dividing the home can be complicated by several factors. Sometimes, if one spouse desires to remain in the home, that spouse can take over payment of the mortgage and costs associated with the home. However, that doesn't make the division of the home any easier. The spouse leaving the residence will want to have his/her name removed from the mortgage, which can typically only be done through a refinance. If the home has negative equity a refinance will be near impossible. However, if neither spouse desires to remain in the home, and the home is in a state of negative equity, then the division can be complicated by having to short sell the home and have the negative consequences associated with that course of action.
Ultimately, whether you are staying in the home or moving on, you will want to protect your credit if at all possible. A recent article by the credit info center discusses protecting your credit during a divorce, in which the home and mortgage is addressed. The author suggests three ways for dealing with the division of a home:
1. Sell the home. Make sure the sale occurs before the divorce, especially if your ex is living in the house during the divorce proceedings. If you have an agreement to sell (the house has not yet sold) at the time of your final divorce, and your spouse is secretly opposed to selling it, he can make it very difficult for a realtor to show or list the home, dragging out the sale indefinitely. In the meantime, you are responsible for the payments and your credit is in jeopardy. It's actually best to have the house empty during the sale of the home; if possible, both of you should be out of the house before it goes up for sale.
2. Have one spouse refinance the home in his/her own name. If one spouse is to keep the house after the divorce, insist that your soon-to-be-ex obtain new financing in his own name. You can't just call up the mortgage company and say, "Hey, I'm getting divorced, can you take my spouse off the loan?" Your lender is going to insist on having your ex go through the formal loan process to qualify. Do not let the final gavel sound on your divorce papers before the house has been through the refinancing process. Having your spouse show you loan approval papers is not enough; last minute glitches that prevent loans from closing occur every day.
3. If selling or refinancing isn't an option. This is the worst possible option. Try to avoid it at all cost. If moving out of your joint home is going to cause hardship to your ex (and/or your kids), and he is unable to refinance the home on his own, here are some things you can do to protect yourself:
- Don't take your name off the title. If you take your name off of title (using a quit claim deed), you are removing ownership but not loan responsibility, a very dangerous situation. This also means that you will not be able to split the equity in the home at the present time.
- Place a limit on how long your ex can stay in the house before it will be sold or refinanced.
- Notify the mortgage company of your change of address and have all statements and coupon booklets sent to your new address (also, see if you can get your ex to mail the payments to you). At the very least, inform the lender that you wish to be notified if the payments get in arrears. In this way, if your ex is late on payments, you will be notified and have the chance to make up the payments.