Divorce and Refinance Considerations

Denise's Question: I am in the planning stages of getting a divorce. The house we live in was purchased 14 years ago. We have a large amount of debt that could be eliminated by refinancing our house. I would like refinance the mortgage in my name and get him to sign a quitclaim deed so I could keep ownership of the house. Should I refinance the house before I file or after I file, and what other financial assets should I look at?

Timothy's Answer: You have many issues to consider while you are in the planning stages of a divorce. Your finances should be one of your top priorities. While your proposed division of assets may seem fair, are you comfortable with the long-term financial impact of your decision?

It is very common for women to have an emotional attachment to the family’s home, but I would urge you to consider whether you will be able to cover your mortgage obligation and the other expenses associated with maintaining a home on your own.

Your question about refinancing your house to pay off the debts is a good one. While it may seem an easy way to eliminate your debt, it may not be in your best interest. Before you initiate a refinancing and/or quit claim deed on your property, be sure you understand what you are getting into financially. Consider these questions:

• How much equity will be left in your home if you pay off your debt and refinance the loan?
  
  
• Will you be able to pay this new mortgage obligation and the other related home expenses?
  
  
• Do you have the ability to qualify individually for a loan?
  
  
• How does my remaining equity in the home compare to the financial assets and pension income my husband retains after the divorce? 

I would highly recommend you hire a Certified Divorce Financial Analyst (CDFA) while you are planning your divorce. A CDFA will help you identify your marital assets, develop a post-divorce budget and advise you on the financial impact of any proposed division of marital assets. They can show you how your decisions will impact your after-tax cash flow and net worth today, in 5 years and well into the future. They provide valuable insights you are not likely to get elsewhere. The division of marital property is almost always permanent. It is imperative you make smart and informed decisions today so your interests are protected in the future.

Heather's Question: In my divorce it does not state that I have to refinance my home. It states I have to pay within 60 days of due date, I am responsible for taxes, insurance, etc. My ex wants his name off of the mortgage and the mortgage company says I have to refinance to do so. Can he force me to do this since it was not in the divorce?

Brette's Answer: No. If it is not in the decree, it is not something you are required to do. He could go back and ask for a modification of the order however.

Angela's Question: My ex-husband and I divorced 17 years ago and his name has always been on the mortgage. I tried to refinance 9 years ago, but he and his wife said no, "because they weren't going to do anything nice for me that would make my life easier". Therefore, the refinance paperwork could not move forward. I hit a rough patch two years ago and my payments were late 10 times that year, but I have made the past 12 months of payments on time. Now he is on the war path to get his name off of the mortgage. His attorney sent a letter threatening to take my home because of the damage to my ex's credit report. It is not in our decree that I am ordered to refinance. Can he FORCE me to refinance (with closing cost and all)?

Brette's Answer: He's only entitled to what your decree gives him. Period. If he wants something else he has to seek it from the court. I would suggest you consult with your own attorney though because should he go to court, it could get expensive so it might make sense for you to settle this. Good luck.

Linda's Question: Our separation agreement includes the following language: "The Husband shall be responsible for all costs related to the Home, including, but not limited to mortgage, taxes, insurance, maintenance and repairs and shall indemnify the Wife and hold her harmless as to any liabilities thereon." If my name is still on the mortgage, can I force my husband to refinance?

Brette's Answer: It is difficult to force someone to refinance because it's up to the bank whether he qualifies for a loan. What indemnification means is that if he fails to pay and the bank comes after you, you can in turn sue him for the costs you face. It's not a perfect situation.

Silke's Question: The house was mine in the decree. We are still both on the loan and on the deed. I am willing to sign the house over to him if he gets it refinanced. However, I don't want to sign the deed over and he never gets it refinanced. Can he get it refinanced BEFORE I sign the quit claim deed?

Brette's Answer: It can all happen simultaneously.

Kristen's Question: My divorce was final over a year ago and in the decree it states that I would get the property title fee simple. The problem is my ex didn't show up for the final hearing and didn't sign a quitclaim deed. Now he won't cooperate and sign the loan assumption paper that the bank requires. Would the court find him in violation/contempt since he refuses?

Brette's Answer: Yes, that's your solution.

Margarite's Question: We bought a house and my husband refinanced it in his name in 12 years later, with the deed remaining in both of our names. When we got divorced, I kept the house and he signed a quit claim deed transferring ownership to me. The mortgage company now wants me to refinance the loan in my own name. I pay the loan payments on time and I own the house, yet they want to charge me $17,000 to refinance the loan, instead of just letting me assume the payments. Is that legal?

Brette's Answer: I'm curious as to how the mortgage company even found out. That seems odd to me - they are usually happy to just be paid. Their problem is if you default they technically can only go after him since his name is the one on the mortgage. That puts them in an iffy position on ever collecting. They don't like the situation because it is messy. You might try asking for a supervisor there and explaining to them that you just want to assume the mortgage. That should be an option. If you can leave things as they are, that would be easiest. If not, you ought to shop the refinance around and get the best rate. Don't assume they're offering you the best deal. I'm not sure how a refinance can possibly cost you $17,000 up front. The fees should be much lower than that. Go to a couple banks and get some rates. Good luck.

Nadia's Question: Part of our divorce agreement is based on the fact that my husband's name needs to be removed from mortgage. Unfortunately, the bank has refused to refinance. In what way does this affect the rest of our agreement?

Brette's Answer: It doesn't affect the agreement, unless one of you wants to return to court to have it modified based on the situation with the bank.

Wendy's Question: My ex-husband was court ordered to refinance the marital home and assume all financial responsibilities of the home, and he says he says he has no intention of doing so. I think the problem is that his credit is poor and the home will not appraise for the amount of the original loan. I went to an attorney and he said "you're screwed because a judge cannot force someone to refinance". If that is the case, then how can a judgment have no legal standing?

Brette Answers: The problem is the judge can say he has to refinance, but the judge cannot force a bank to give him a loan. Therefore the judge can't force it to happen. The judge has jurisdiction over your ex (not any banks) and you can return to court and have him held in contempt, but if he has credit so bad that he doesn't qualify, there's not much that can be done.

Tasha's Question: My husband wants to "buy out" my interest in the family home and refinance the mortgage and home equity loan in his own name. How can I guarantee that I will get my portion of the equity, especially if I sign a quit claim deed.

Timothy's Answer: If one spouse wants to keep the marital home that is jointly owned, the other spouse may negotiate a "buy out option" in which the equity in the house is traded for a matching amount of equity in something else.

You should consult an attorney before you sign any legal documents. I cannot stress enough how important it is to have your divorce judgment or separation agreement include specific language about your refinancing plans and a contingency plan should the spouse who receives the home is unable to obtain a new mortgage. Too often, we see cases where the spouse who moved out and executed a quitclaim deed run into financial difficulties due to issues that are caused by problems with refinancing.

The equity you receive in exchange for allowing your husband to keep the marital home should be well documented so there is no confusion regarding what assets you retain and what assets your husband retains after the divorce is final.

Cindy Asks: My ex-husband is supposed to pay me $6100 of the home's equity, which he would get from refinancing the home. He's been told by several lending institutions that he cannot refinance, and his financial plan shows no available money to pay this back. He is indicating that he can't pay this until he is able to refinance (in 40 months). How can I get my equity if he claims not to have the financial resources?

Brette's Answer: The problem is that refinancing is not up to your husband. The court can order him to attempt to refinance, but if he doesn't qualify, the court cannot order a bank to do it. If he's not able to refinance you can ask to have the terms of the settlement changed to reflect this - perhaps he could pay you a monthly amount until he is able to refinance. I suggest you talk with your attorney about what options are available to you. Good luck.