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What Happens During a Divorce with a House and a Mortgage?

Since your house is probably your largest single asset, it’s likely to be one of the most contentious aspects of your divorce proceedings. Unless you and your spouse can agree to an unorthodox living arrangement, it’s unlikely that you’ll both remain in your current home after the divorce. As such, one of you will have to find alternate living arrangements. If there are children involved in this process, it’s liable to become quite complex and bitter. These complicated issues could cause your divorce to drag on for years and cause untold amounts of unnecessary pain.

Most states provide divorcees with several options for disposing of their joint mortgage obligations. The structure of the arrangement on which you and your ex-spouse ultimately agree will depend upon a variety of factors.

If your annual income is significantly greater than that of your spouse, it’s likely that you’ll be entitled to retain the mortgage to your home. If your marriage didn’t produce any children, you’ll also be entitled to remain in the home. Accordingly, your ex-spouse will have to find another place to live. If he or she had any equity in the mortgage, you’ll be required to “buy out” this equity. In many cases, this payout will enable your ex-spouse to put a down payment on another home. Meanwhile, you’ll significantly increase the equity in your current home.

If your ex-spouse is awarded full custody of your children, he or she may be entitled to remain in your marital home. In this situation, your roles may reverse: Your ex-spouse will be required to buy out your stake in the home and assume full responsibility for its remaining mortgage balance. If this isn’t financially feasible, the judge who oversees your divorce may require you to incorporate a “mortgage allowance” into your existing child and spousal support payments. This has the potential to increase your monthly support payments by 50 percent or more.

If you and your ex-spouse are facing serious financial struggles, you may wish to consider selling your home and splitting the proceeds. Depending upon the amount by which your home’s value has appreciated since its purchase, this arrangement might produce solid profits. You and your ex-spouse might be able to use this one-time windfall to settle your divorce-related debts and make a fresh financial start. Alternatively, the non-custodial parent might be able to put his or her share of the proceeds into an escrow account that throws off periodic child or spousal support payments.


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