Nolo's Essential Guide to Divorce - Emily Doskow [111]
Most likely, the transfer of deeds and money will all happen at the same time at a "closing" with the escrow company. If you are the selling spouse, this is the best scenario for you. If there's not going to be a closing, make sure the refinance is completed and you've gotten your money before you sign a deed.
If you're the buying spouse, make sure a title search is done to see that there are no liens (legal claims-for example, for back taxes) or other "clouds" on your title. The title company handling the closing should do this for you. See Chapter 15 for more on making sure all the important paperwork is taken care of.
Releasing One Spouse Without Refinancing
In some cases, it's not necessary to refinance the house when one spouse buys out the other. Instead, the spouse who's keeping the house signs a document releasing the other one from responsibility for the existing mortgage. The mortgage holder must approve this arrangement, and the buying spouse will probably have to fill out the same application form as if applying for a new loan. You might want to do this if:
• interest rates or other loan terms are not as favorable as those under your current loan
• the buying spouse is trading other assets for the house or doesn't need cash to accomplish the buyout, and
• the buying spouse qualifies for the loan independently.
Not all mortgage lenders will agree to this arrangement, called a "release of coborrower." But if you're interested in it, there's no reason not to find out.
Continue to Co-Own the House
It's not unusual for spouses to continue owning the family home together, especially where kids are involved. For example, if one of you wants to buy the other out but can't afford to do it all at once, you might agree that payments can be made over time while both of you keep an interest in the house. It's also an option in a weak real estate market if you believe things are going to improve. Or you might delay the sale until a specified event, perhaps your youngest child's graduation from high school. (This is called a `deferred sale.")
There are pluses and minuses to continuing to share ownership. If the custodial parent can't afford to buy the other one out, then the obvious advantage is that the kids get to stay in the house anyway, providing an important sense of security and continuity for them. It can make a buyout possible by spreading payments over time.
Apartments aren't so bad ...
A divorcing couple with an eight-year-old son agreed that they would continue owning the house together until their son was in high school, though the husband moved out. The wife said, "I could have asked for more spousal support, but Greg really took the high road where the house was concerned. He'll be renting until our son is in high school-with this big loan on his record, no way will he be able to buy another house. It was a big sacrifice and it definitely made me more willing to compromise on other issues. We worked everything else out really easily after that was resolved."
The disadvantages can be pretty significant, though. Because you are both responsible for paying the entire mortgage, a credit report for either of you will show the entire amount of your mortgage. Having such a large debt on your record, especially if you are not living in the house, can make it difficult to get credit for other purposes. You also bear the risk that your spouse will make late mortgage payments that will hurt your credit rating.
There's also a fair amount of accounting involved. You must decide how you will share the mortgage and upkeep expenses and who can take the mortgage interest deduction. For example, even if you pay equal amounts toward the monthly mortgage, you can agree that one spouse who would benefit more from it gets to take the entire mortgage interest deduction, in exchange for increased support or some other equalizing payment.