In New Jersey, the marital home can be one of the biggest assets during negotiations of equitable distribution in a divorce proceeding. In many cases, equity or value in a home can be a lifesaver by providing a spouse, or in some cases both spouses, “starter money” to begin a new life without his or her former partner. In other cases, the home can provide stability and security for young ones.
The Basics of Home Ownership and Division
Often couples do not understand the practicalities of dividing equity in a home through a divorce action. Especially when couples try to complete the divorce process themselves, they may include language in a settlement agreement that is not complete, that cannot legally be fulfilled, or that does not fulfill the intentions of the parties.
As a starter, it is good to understand some basics about your home. Unless you paid for your home in full, in cash, you most likely had to take out a mortgage loan from a lender. At your real estate closing you executed two documents (you actually executed many more, but only two are relevant for this conversation) – a note, and a mortgage.
The note is what obligates you to repay the bank for the loan provided to purchase your home usually in regular installments. The mortgage is what allows the bank to take your home if you do not pay or otherwise breach the terms of any agreements you have with the bank.
In most cases, both spouses will sign the mortgage, but both spouses do not necessarily have to sign the note.
In a typical divorce, a couple may say “the husband will be fully responsible for paying the home loan.” The problem is that just because you say that does not make it true. If the wife signed the note or mortgage for the loan, the wife remains responsible for it as far as the bank is concerned. The bank does not care that you have this divorce agreement saying your ex-husband will pay it.
If it is not paid, the bank will come after you, ruin your credit, and sue both debtors for foreclosure, regardless of the divorce agreement. In worst case scenario, whomever was awarded use and possession of the marital home may be kicked out during the foreclosure process.
A simple solution may be just removing one spouse’s name from a document or changing one spouse to another on a loan or mortgage, but that is almost always impossible to do. The bank approved one of you for the loan when you took it out, and it is not going to just swap one person for another without proper process of loan approval.
Of course, assuming someone has the creditworthiness, a party can always agree to refinance a loan in his or her name alone, completely removing the other spouse from liability. Many divorce agreements do say that Spouse A agrees to refinance within X months to remove the other spouse from the mortgage and debt obligation.
Still, what if the spouse obligated to pay the mortgage loses his or her job, or his or her credit drops before a refinance can happen? The other spouse could still be stuck with his or her name on the loan and have the potential of facing foreclosure. That is why specific language and various contingencies have to be considered when dealing with a marital home, including the possibility of immediate sale and division of the proceeds.
Contact Agnes Rybar LLC today for help with any family law or divorce questions you may have!
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