What Happens to the Mortgage in a New York Divorce?

Nyack Divorce Lawyer

Just like all other forms of marital property, a couple’s mortgage on their home must be divided during their divorce. A mortgage is considered to be a piece of marital debt.

However, a mortgage is handled differently than a house, boat, car, or other piece of tangible property. That is because it is not a physical item that can be given to one party or the other, but a promise of payment the couple made together to their lender.

In many cases, what happens to the mortgage is closely tied to what happens to the couple’s home. If one of the spouses chooses to keep the family house, he or she may be held responsible for continuing to pay for it. If the couple opts to sell their home, they may be able to completely pay off their mortgage with the proceeds of the sale.

Equitable Distribution Law

Since the passing of the Equitable Distribution Law, an amendment to the Domestic Relations Law, in 1980, New York divorce courts follow the equitable distribution model when dividing property among divorcing couples. This means that the property is divided according to what the court determines to be fair, rather than completely splitting the couple’s property 50/50.

The court considers various factors to determine the percentage of the couple’s marital property that each partner is entitled to receive and, of that property, which pieces. These factors can include, but are not limited to, the following:

  • Each partner’s assets and current income;
  • Each partner’s age and health;
  • If the couple has children, the child custody and support arrangements for them;
  • Whether either partner is seeking, receiving, or currently making spousal maintenance payments; and
  • Both partners’ projected tax consequences for keeping large pieces of marital property, such as the family home.

These factors determine how much each partner has invested into the couple’s marital property as well as how to address both parties’ needs following the divorce.

Options The Court May Consider

The court has a few options to consider when deciding what will happen to a couple’s home and mortgage obligation following their divorce. Each has positive and negative aspects and may be better suited for some couples than others.

  1. Jointly retain the home. With this option, the home’s ownership is converted to a tenancy-in-common, which means that the partners each own half of the financial interest in the house following their divorce.
  2. Sell the home. The court can order that the couple sell their home, use the proceeds to pay off their mortgage, and then divide any remaining proceeds between the couple.
  3. Refinance the home to one spouse. This must be done through separate paperwork – one spouse must sign away his or her interest in the home and the other must then obtain a new mortgage in his or her own name, based on his or her income.

The best option for an individual couple can depend on many factors, like emotional attachment to the home, proximity of the home to one’s workplace, or a desire to keep the children in the same home until they become adults.

Debt, and Underwater Mortgages

When the amount of money a couple owes for their home is higher than the home’s market value, the couple’s mortgage is considered to be underwater. Going through a divorce while one’s mortgage is underwater can pose many problems to both parties and force the court to come up with a solution for splitting their debt.

Two popular options for couples with underwater mortgages to take when divorcing are:

Short selling their home.With a short sale, a house is quickly sold, often at a loss to the owner. The benefit of a quick sale is that the house is no longer an issue to consider in the divorce. It also spares both partners the costs and time investment of going through a foreclosure.

Crediting the spouse who keeps the home for negative equity. This means that if the mortgage is underwater by $25,000, the spouse who keeps the house is granted $25,000 to cover this negative equity while the other partner is relieved of his or her obligation. This $25,000 comes from the relieved spouse’s total settlement.

Whether either of these options is viable for you and your spouse depends on your current financial situation and your plans for the future of the home. If your mortgage is currently underwater, talk to your attorney about the options you will have regarding it during your divorce.

Contact a Nyack Divorce Attorney

If you are a homeowner considering going through divorce and want to learn more about how your divorce will affect your current mortgage obligation and what your options regarding your home may be, contact an experienced Nyack divorce attorney at The Law Offices of Robert S. Lewis, P.C. at 845-358-7100 for your legal consultation. By learning as much as you can about the process before you file for divorce, you will feel empowered and potentially receive a more favorable settlement.