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Understanding how divorce will impact a mortgage

Determining what to do with the family home is among the most difficult decisions that a divorcing couple will make. In many cases, one or both spouses feel a strong attachment to their homes and do not want to move on from that property. When this occurs, a greater degree of negotiation is sometimes called for, leaving Colorado couples with a reduced number of options during their divorce.

Very often, the choice that makes the most financial sense is to sell the property and divide the proceeds. This allows both parties to walk away from the home with no mortgage debt and hopefully with an influx of cash to put to use in finding their new homes. In many cases, however, one spouse wishes to keep the home.

In that scenario, there are several options. The spouse who is retaining the property can "buy out" the other spouse's equity in the home by ceding a greater share of other assets. However, it is important to realize that this approach does not remove the other spouse from the mortgage; he or she will remain listed on the loan until the mortgage is either paid off or refinanced. That leaves the spouse who walked away from the home with no real ownership interest in the property, but still on the hook in regard to the available credit that shows up on a credit report. That could mean having to postpone purchasing a new home until the matter is resolved.

One way to address this divorce issue is to negotiate an agreement in which the retaining spouse is given a specified period of time to refinance the mortgage and remove the other party's name. If that cannot be accomplished within that timeframe, the retaining spouse must agree to sell the property. This can place a heavier burden on the retaining spouse, but it gives the other party the ability to move forward with a greater degree of financial flexibility. For some Colorado couples, this is the course of action that makes the most sense for both sides.

Source: TIME, "What Happens to Your Mortgage in a Divorce", Ashley Eneriz, March 29, 2016

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