Home equity loans and divorce

A home equity loan is a popular way for married couples to access some of the equity they have accumulated in their home. Generally, since your marital home is considered a couple’s joint property and home equity loans are secured by that property, any such loan will be a joint liability.

This responsibility is not affected by the divorce: if you were jointly responsible for repaying a mortgage before you divorced, you will still be responsible for repaying it afterwards. That said, there are a number of ways to work with home equity loans during a divorce that can simplify your finances and your responsibilities. In this article, we will see how home equity loans are handled during a divorce.

  • Home equity loans are a popular way for married couples to access some of the equity in their joint home.
  • Since married couples are legally considered to own their home together — even if there’s only one name on the mortgage — home equity loans are also a joint responsibility. After a divorce, home equity loans remain a joint responsibility.
  • It is important to check if there is an outstanding home equity loan on your property during your divorce.
  • It is also possible to explicitly state that a partner is responsible for the loan during your divorce proceedings.

Home equity loans during a divorce

In general, home equity loans are not affected by divorce. This means that if you have taken out a mortgage with your partner, you are jointly and severally liable for it even after your divorce. This not only means that you are responsible for loan repayments, but also that any missed payments will affect your credit score. It also means that your creditor (i.e. your bank or credit union) still holds a lien on your home and can recover it if they foreclose on the loan.

If you had a home equity loan as a married couple, it is almost certain that you are both responsible for it. If you live together as a married couple in a house with a mortgage, it is considered your “marital residence” and therefore your joint property, even if only one of you is named on the mortgage.

When you applied for your home equity loan, therefore, it is very likely that your lender or broker required your spouse’s signature on any instrument necessary to make the property offered as collateral available to settle the debt if you do not repay. For example, a lender or broker may have asked your spouse to sign an instrument to create a valid lien or convey clear title.

Be aware, however, that in some cases it is possible to take out a home equity loan without the express permission of a spouse, either because a lender does not require both of you to sign, or by deception. It is therefore very important to check that there are no outstanding home equity loans on your property during the divorce proceedings; otherwise, you might get a nasty surprise.

Be sure to do a title search as part of your divorce proceedings. This will show if there are any home equity loans against your home.

Home Equity Loans After Divorce

The default approach to property in a divorce is to divide it equally between the parties. Taking this approach for a home with an equity loan attached would split both the home equity and the loan equally. After the divorce, both parties would own half of the equity accumulated in the home, but both would also share responsibility for paying off the home equity loan.

In practice, it is common for an ex-partner to continue to live in the marital home. If this is the case, it is possible to specify in your divorce decree that the partner who remains in the house will take full responsibility for the home equity loan. Alternatively, it is possible to keep the house in joint ownership for a number of years, refinance the house once more and use the resulting funds to buy a partner out of the house.

What happens to a home equity loan in the event of a divorce?

In general, home equity loans are not affected by divorce. If you and your ex-partner were responsible for paying the loan before your separation, you will be responsible for repaying it afterwards, unless explicitly stated otherwise in your divorce proceedings.

Can a spouse get a home equity loan?

It is very difficult for one of the spouses to get a home loan without the consent of the other, because the house that guarantees the loan is considered joint property even if there is only one name. on the mortgage. That said, it’s important to do a title search for your property during a divorce to make sure your spouse hasn’t deceived the equity in the home.

Can a partner take the home equity loan?

Yes. It is possible to assign responsibility for a home equity loan to a partner as part of your divorce decree. Alternatively, you can refinance your home as part of your divorce financial arrangements and use the money to buy the equity in an ex-partner’s home.

The essential

Home equity loans are a popular way for married couples to access some of the equity in their joint home. Since married couples are legally considered to own their home together — even if there’s only one name on the mortgage — home equity loans are also a joint responsibility. After a divorce, home equity loans remain a joint responsibility.

It is important to check if there is an outstanding home equity loan on your property during your divorce. It is also possible to explicitly state that a partner is responsible for the loan during your divorce proceedings.

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