Divorce proceedings produce plenty of emotional, financial and logistical headaches. Worse, they can create repercussions and aftereffects that last for years after the initial separation. While it's virtually impossible to anticipate all of these problems, there are steps that you can take to prepare for some common setbacks. Take a moment to learn how a divorce can affect your mortgage payments.
Qualifying for a Mortgage Loan
If you're applying for a mortgage after completing a divorce, you must be prepared to speak at length about your financial situation. Unlike married or single borrowers, divorced mortgage applicants must provide a copy of their mortgage decrees as well as a number of additional documents that reveal crucial information about their assets and income.
Child Support and Alimony
Although you probably think of them merely as hard-won entitlements or problematic obligations, child support and alimony play a crucial role in the calculation of your post-divorce mortgage payments. If you're a custodial parent who's entitled to child support, you can and should highlight this income in your mortgage application. Likewise, alimony payments can and should count towards your eligibility.
Conversely, you must disclose any child support or alimony payments that you're required to make as part of your divorce settlement. If you don't do so, you could be held financially or even criminally liable by your mortgage lender. Worse, you could lose your house to foreclosure.
Joint Bank Accounts
If you have an existing mortgage during the divorce process, it's undoubtedly a major bone of contention between you and your soon-to-be ex-spouse. In legal parlance, the money that sits in a joint bank account is known as "co-mingled funds." Even if your divorce agreement is structured to award the marital home to your spouse, you'll still be held responsible for making payments on it as a joint owner of these co-mingled funds. Naturally, this exposes you to undue financial risk in the event that your spouse stops paying his or her mortgage. If you don't take steps to close or separate your joint bank accounts, your mortgage payments could effectively double. If you can't afford to cover your spouse's half of this outlay, your credit score could suffer as well.
Cosigned Mortgages
Cosigned mortgages can create additional headaches. If you cosigned a mortgage for your spouse during happier times, you'll continue to be held liable for it in the aftermath of your divorce. Fortunately, "community property" states make provisions for cosigners who wish to "cash out" of their obligations. If you're willing to give up your marital home, you can sign it over to your spouse and walk away with no further obligations. However, it's unlikely that a cash-strapped spouse would agree to such an arrangement. In many cases, cosigners who don't retain possession of their marital homes work out "in kind" reductions to child support or alimony payments.
Bankruptcy, Foreclosure and Other Tangential Issues
It's possible that your divorce is a cause or result of acute financial problems that have resulted in bankruptcy or foreclosure. While such situations produce a whole host of additional considerations, they have particular ramifications for joint mortgage holders. Even if you agreed to transfer your interest in the home to your spouse as a result of your divorce agreement, you may still be financially attached to your mortgage lender as a cosigner or joint mortgage holder. It's difficult to relinquish this claim without declaring bankruptcy and returning the home to your spouse's sole possession. Unless he or she is able to afford to shoulder the entire burden of the loan, this might not be an ideal solution. Many divorcees in this position work out some sort of financial agreement that doesn't change the underlying ownership arrangement.
