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Challenges with divorces and mortgages

When it comes to Connecticut divorces, real estate tends to be a couple's most valuable asset. The underlying mortgage can continue to affect the party who moves out, so it is vital for people to take the proper steps to protect themselves from future problems. The first thing to keep in mind is that lenders are not bound by divorce decrees. As long as both parties have their name on the mortgage, the lender can hold both of them responsible for payments. This makes it more difficult for one to buy another house in the future, and it can also result in poor credit ratings if the person that remains in the home does not make the payments.

Ideally, only one spouse's name will be on the house after the divorce is completed. This can be accomplished through several different routes. If one party wishes to remain in the house, they can refinance the mortgage into their name.

When one person refinances the mortgage, the other party may want to have their initial down payment reimbursed. If there is enough equity in the house, then the party staying can cash out the one who is moving out. There are situations where this division of assets is more complicated because they house may have lost value. In this case, the remaining party may be able to gift funds to the other to help make up the difference between the available equity and the initial investment.

Another aspect that divorcing couples should remember is that they should see the divorce through completely before making the investment in another home. Otherwise, the former spouse could try to make some claim on the new property. In the event that the transaction is moving forward before the divorce is finalized, home buyers can protect themselves by having the other party sign a quitclaim deed.

Source:, "How to Divide Your House in a Divorce", Scott Sheldon, July 09, 2014

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