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How Is Mortgage Dealt With in a Divorce?

By Michael DiFalco

When a couple decides to divorce, there is no shortage of details to work out, both emotionally and financially. In New York, a mortgage is considered marital property, but it’s handled differently than other tangible pieces of property, such as a car or a boat. 

A mortgage isn’t an item that can be given to one party. As such, the way in which a home’s mortgage is dealt with depends largely on what happens with that home. If one of the spouses continues living in the family home, they may be responsible for paying the mortgage, but if the couple sells or rents the house, other options must be explored. 

Understanding Equitable Distribution Law

New York’s Equitable Distribution Law requires courts to determine what is equitable regarding the splitting of assets in a divorce. Remember, though, that “equitable” does not always mean equal. 

Several factors are considered in the division of marital property, such as:

  • Each partner’s assets
  • Whether either spouse is paying for spousal maintenance
  • If there are children and if so, what the custody arrangement is
  • How tax consequences would affect either partner

The amounts that each partner may have already invested in the property may also be considered. 

Possible Options for Dealing With a Mortgage in Divorce

Many factors come into play when deciding on the best choice regarding a mortgage in a divorce. One partner’s sentimental attachment to the home, the property’s proximity to a spouse’s workplace, and the desire to keep the couple’s children in the family home are all important considerations. 

Your first option is to retain the mortgaged home jointly. In doing so, your shared home ownership converts to “tenancy in common,” which means each partner owns half of the financial interest in the property. 

Selling the home is another common option, especially if no children are involved. If the court orders the couple to sell, the proceeds can be used to pay off the mortgage, and any profit will be divided between the two partners. 

Lastly, refinancing may be the best option if one spouse wants to remain in the family home. The other spouse will sign away their interest, while the one who plans to live in the home must obtain a new mortgage in their name. 

What if the mortgage is underwater?

When a mortgage is higher than a property’s current market value, it is referred to as being “underwater” or upside-down. An underwater mortgage can complicate the equitable division of property. Selling a home when it is underwater could result in a huge financial loss. 

If neither partner wants the home and getting out of the mortgage is the priority, a short sale may be the best option. A short sale is one with limited escrow time. They typically result in a loss but can help mortgage holders avoid foreclosure. 

Negative equity comes into play when a home is upside-down. For example, if a home is worth $50,000 less than its mortgage, the spouse who keeps the house will be granted an additional $50,000 from the total settlement to balance the debt. While one spouse receives credit for the negative equity, the other is relieved of their mortgage obligations. 

Consult With a Family Law Attorney

Deciding how to divide your assets and deal with debts in a divorce is undoubtedly complicated. It’s not only the couple’s wishes that need to be considered but also compliance with New York’s divorce laws. 

The family law attorneys at Aiello & DiFalco in Garden City, NY, are here in your time of need. Our experienced family law attorneys will protect your rights, even in the most difficult divorce settlement.

About the Author
I am a partner at Aiello & DiFalco LLP, and my priority for my clients is to guide them through an arduous court case to provide them with the opportunity to write the next chapter in their life. I tailor my approach to each client’s priorities and positions, and to the extent that matters can be predicted, I will always provide a realistic perspective of how the law could be applied to the particular facts and circumstances of a case. Since I thrive on helping people and solving problems, I bring an optimistic and positive approach to practicing in a very difficult area of law. With more than a decade of experience handling hundreds of cases, I have the ability to get results on the issues my clients view as priorities. When cases or certain issues cannot be settled, I have a solid record of success at trials, hearings, and on appeals. Feel free to contact me for a free initial consultation, I am always available to help.