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Navigating divorce and the mortgage post-divorce

Getting through a divorce and finding your own way in life is "a" if not "the" major obstacle of ending a marriage. With emotions running high sometimes it can be difficult to look at the financial aspects of divorce. One major financial aspect is property division and who will receive the house after the divorce.

Under most divorce settlements there are two outcomes regarding a former couple's house. The house must either be sold or the individual who wants to keep the property must purchase their former spouse's share of the property. The former spouse's name can be removed from the mortgage in one of two ways: refinancing or release of liability. Often individuals believe that refinancing is their only choice and either overlook release of liability or do not know it is an option.

Under release of liability an individual's former spouse signs a deed to give up their claim to the property, but there is a catch. The action removes the former spouse's name from the title of the property but does not remove the former spouse's name from the mortgage. The benefit of removing a former spouse's name from the title of the property is that it can protect the credit of both former spouses.

Not all lenders and mortgage providers will provide the option of release of liability and normally an individual who applies for one must financially qualify. In order to determine eligibility, lenders and mortgage servicers will look to see whether monthly mortgage payments are current and will look at the individual's entire financial picture by reviewing financial accounts and credit history. Additionally, an individual who owes more on their mortgage than what the property is worth will probably not qualify for the option.

Source: The New York Times, "Avoiding refinancing costs after divorce," Lynnley Browning, 4/7/11

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