Mortgage Debt in New York Divorce

by Ani Mason
Founder | Mason Law & Mediation

Most homeowners have debt associated with their home, usually in the form of a mortgage and/or a home equity line of credit (HELOC). In a divorce process, a mortgage or HELOC is often the largest marital debt on the table, and it’s important to understand some of the key considerations in distributing responsibility for it.

Depending on the resident spouse’s income and the amount of debt outstanding on the home, it’s not always possible to refinance (or assign the mortgage).

Note: If you and your spouse have already decided to sell the marital home, your mortgage and/or HELOC debt will likely be paid off with the proceeds of the sale, and the considerations that follow will be less of a concern for you.

Where both spouses’ names are on the mortgage—or, where only the non-resident spouse’s name is on the mortgage—there are two issues to consider, both of which relate to the non-resident spouse’s credit.

The first issue is that the spouse who has left the home, but still has his or her name on the mortgage, is exposed to the risk of a negative impact on his/her credit if the spouse residing in the home does not make the mortgage payments on time. Where this is an issue, some couples will agree to have the non-resident spouse pay the mortgage directly, as part of a child and/or spousal support package. This is not at all necessary, nor is it particularly common, but it does offer some additional protection for those couples who wish to maintain the marital home while protecting the non-resident spouse’s credit. 

Another issue that comes up when the non-resident spouse’s name remains on the mortgage after they’ve left the home is the difficulty of taking on any other mortgage debt. This generally means that the non-resident spouse will not be able to buy a home of their own unless they have enough liquid capital to make an all-cash purchase. Unless the spouse who left the home prefers to rent indefinitely, not being able to purchase a home is a serious issue.

This is where refinancing a mortgage may be helpful. IF the spouse who’s remaining in the home has sufficient income to qualify for a mortgage, he or she can apply to refinance. Where approved, the resident spouse will be able to pay off the old mortgage and remove the other spouse’s name from it, without having to sell the home. A refinance protects the non-resident spouse’s credit and opens up the possibility for the non-resident spouse to qualify for a mortgage of their own.

Assignment of a mortgage is an alternative to refinance, in which the bank allows you to transfer the loan from both spouses’ names to just one spouse. It’s harder to achieve, but worth looking into, either where a new mortgage’s rate would be worse than the current mortgage, or where the rates are comparable and the resident spouse does not wish to start over with a 30-year mortgage.

However, depending on the resident spouse’s income and the amount of debt outstanding on the home, it’s not always possible to refinance (or assign the mortgage). Where that’s the case, the spouses will often agree on a certain amount of time during which the resident spouse can attempt to refinance (or assign the mortgage). If those attempts are unsuccessful, the home will be sold after the designated period of time, to ensure protection of the non-resident spouse’s credit.

Founded in 2014, Mason Law & Mediation provides highly-skilled and holistic mediation, Collaborative Law, settlement negotiation, and legal coaching services to individuals, couples and families in New York.