Divorce, your mortgage and your credit

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Whether you’re married or are a couple who own a home together and are now facing a separation, dissolving a partnership is never easy.   Even if both parties are amicable and agree to the break up, it is a very emotional time.  You may just be thinking about who gets to keep the house…or you just may want out and not even care about the property.   Your mortgage and credit history is probably the last thing on your mind…however, you may want to consider protecting the credit that you’ve worked hard for.   

Do contact an attorney who specializes in divorce.   Even if you just contemplating a divorce and you’re not certain you will file.  It’s important to find out the facts and get legal advice from a professional. 

Obtain your current credit report.   You can get a free copy from www.annualcreditreport.com.    Review it to make sure that your debts are in order and that the other party is not using your credit for “retail therapy”.    Identify which accounts you may want to close if they have your name on them.   The credit company may be all too happy to issue your own card in your own name.    Having an ex-partner with your credit, even if you’re getting along now, can wreck havoc on your scores.   If your name remains on an account they have, even if they pay the debts on time, if the balances exceed 30% of the limit on a credit card, your credit score will suffer too.   

Consider closing any joint accounts immediately that are not in use and removing your name from any accounts that you are a signer on.

Secured accounts, such as loans attached to vehicles and mortgages must be dealt with too.   You might consider selling the items that have secured loans in order to remove your name and liability from the debt.   Otherwise, you should consider refinancing the loan.   Plus, the payments may be factored as your debt when qualifying for new loans, such as a  mortgage.

Should your ex-partner decide they want to keep the house, require that they refinance the mortgage so that your name can be removed from the debt.   Deeding the property from one person to another does not remove the liability of the mortgage.   Even if your partner is a really nice person right now, if they lose their job 5 or 10 years from now, and your name is still on the mortgage, it will dramatically impact your credit if the bills are not being paid. 

If your ex-partner does not qualify for a refinance of the property, then how can you expect them to make the payment?  It’s too risky.   

One of my friends went through a divorce.  Her ex really wanted the house.  He did not qualify for the mortgage on his income alone and wasn’t thrilled when she insisted that he needed to refinance to take her name off of the mortgage.   Although it was a tough decision, they sold the house and split the proceeds.   He remarried and bought another house with his new wife and in just a few years, filed bankruptcy and the home was foreclosed.   Imagine what would have happened to her credit if she would have accepted the cash offer of her share of equity without refinancing the mortgage out of her name?  She would have been responsible and included in the foreclosure.   Her credit would have been trashed and it would be extremely difficult for her to buy a home.   

Should you divorce, your divorce decree will not override your agreements with creditors.   It’s important to be proactive and to always take steps to protect your credit.  Although credit scores are reflective and not permanent, bankruptcy and (especially) foreclosure will impact your credit scores and interest rates for years.

Remember, take precautions with your mortgage, credit history and consult with an attorney if you are considering a possible divorce.

Comments

  1. Rhonda….this is excellent advice and information. Too often people don’t understand the ramifications of their decisions regarding real estate, credit standings and separation or divorce. I run into problems with buyers and these issues more than most people would imagine.

  2. Hi, my sister need to get a divorce. Her husband has been abusing her for yrs etc and I guess fater 8 yrs she finally had enough. Also she is paying the mortage on their house, that they are building in Hawaii. It’s in her name and well he refuses to finish it, and she has to finish it, even though she has to rent somewhere else and he’s living in it. But her credit will go under if she dosent continue paying. Is there anything she can do to rectify herself financially? Whats your best advice?

  3. Melissa, I’m very sorry to hear about your sister’s situation. I highly recommend that she begins with contacting an attorney who specializes in divorce as soon as possible. Credit scores are temporary and can be improved if her scores drop during the divorce or troubled times. It might take months or a few years to return her scores to where they are favorable. However, if she’s dealing with abuse, that’s a much bigger issue than a credit score.

    The attorney can also help with issues regarding the house. It’s possible with a divorce situation, selling it might be a good option. Again, I cannot stress enought the importance of your sister contacting a divorce attorney.

  4. Hi Rhonda

    I am currently divorced; and the house was awarded to my ex-husband, but the mortgage is under my name; and my ex-husband has not made one payment in going on 2 years. My credit is very good; but I can not continue to afford to pay my mortgage and his mortgage as well. I submitted what we call an assumption of the mortgage, but he does not qualify, because he has bad credit and no income. What are my options? I cannot afford to continue paying this mortgage.

  5. Rhonda, I recommend that you contact an attorney. It sounds like the house may need to be sold as hard as that may be for both of you.

    Some mortgages are not assumable and unfortunately, lenders do not modify mortgaegs due to divorce. I wish they did assuming the person awarded the property qualified. Because of the current system, people are forced to refinance the entire mortgage.

    Please do seek an attorney to review your options.

    Best wishes.

  6. shelbie says:

    Hi Rhonda,
    I have a very specific scenario involving my mother and step-father of 20 years. They are married with a second mortgage on their house which they are now upside down in. My mother is considering a divorce and I wonder what her options are. Would she leave and be compensated some how or does he leave and she keeps the house, 2nd mortgage and all or do they sell it to simply try to pay off the debt? Sorry for the rant but all of this has come to my door over the past few hours and I have no idea at all which direction to help her go.
    Thank you for your time and knowledge,
    Shelbie

  7. Shelbie, I highly recommend that your Mom seeks the advice of an attorney asap. If she walks away and he does not make the payments, her credit will suffer. If they are upside down in the house, they may not qualify for a refinance and may have a tough time selling.

  8. Hi Rhonda,

    My ex and I divorced after 17 years of marriage and two children. We immediatley knew it was a mistake as soon as it was final but there was some healing that had to take place. We are now 1 year 9 mos divorced and ready to get remarried. The problem is that I am having a home built on an FHA loan in my name only. Our previous home loan was an FHA and is in his name only but I am on the deed. I know you can only have 1 FHA loan, so if we remarry, will that disqualify me? We will not make anything on the other house due to the market so we were thinking of renting it out.

  9. Hi Rhonda, I have been married 13 years and my husband decided he wants to seperate. He wants to keep the house, which I don’t care, except the problem is the mortgage is in my name only, but he is on the deed. When I lost my job my husband filed BK on the house only, I have not on the BK, the problem is I want to purchase another home, but I can’t because my credit scorce i.e. 580/600. I feel as I”m struck for the next 2 years until his BK is over. Do know if I have any other options.

    Ann

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