How Divorce Affects Your Mortgage: What Family Law Professionals (and Homeowners) Should Know

When couples divorce, the marital home is often the single largest asset involved—and also one of the biggest sources of confusion. While one spouse may be awarded the home, both names often remain on the mortgage, leading to unforeseen complications when it comes to financing in the future.

One solution that’s commonly misunderstood is the Simple Legal Transfer Assumption, protected under the Garn-St. Germain Depository Institutions Act of 1982. While this can help protect divorcing homeowners, it doesn’t automatically solve the issue of post-divorce mortgage liability. Without taking the right steps, both spouses could remain financially tied to the property long after the divorce is final.

Why This Matters for Your Clients

Mortgage guidelines do allow a borrower to exclude a jointly obligated mortgage from their debt-to-income ratio—but only when specific conditions are met. That typically includes documentation from the divorce decree assigning the debt to the other spouse, along with proof that payments have been made consistently for at least 12 months.

Without this clear documentation, the vacating spouse could face serious obstacles in qualifying for a new mortgage.

By including precise and intentional language within the divorce decree or property settlement agreement, the vacating spouse gains a significant legal advantage. This clarity helps mortgage lenders assess future qualifications and safeguards financial independence.

The Importance of Proper Settlement Language

To help ensure a clean break, it’s critical that settlement agreements clearly document who is responsible for the mortgage moving forward. This language helps underwriters exclude the vacating spouse from liability, assuming the responsible party continues making payments as agreed.

Here’s an example of the type of language often used:
“Real Property Award and Mortgage Responsibility – The marital residence located at [address] shall be awarded to [spouse’s name] as their sole and separate property.”

While this clause is common, it must always be customized by a qualified family law attorney.

The Catch: The Mortgage Note Stays in Both Names

Even with the right settlement language, the original mortgage note remains in both parties’ names unless a formal refinance or loan assumption is completed. The Garn-St. Germain Act simply protects against lenders enforcing a due-on-sale clause due to divorce—but it doesn’t remove the vacating spouse’s legal obligation.

In short: without a refinance or assumption, the vacating spouse remains legally tied to the mortgage even if they no longer own the home.

How I Help as a Certified Divorce Lending Professional (CDLP®)

At Integrity Mortgage, I specialize in helping homeowners and their advisors navigate the complexities of mortgage planning during divorce. As a Certified Divorce Lending Professional (CDLP®), I work closely with attorneys, financial planners, and divorcing homeowners to ensure everyone has clarity, confidence, and a strategy that supports long-term financial goals.

If you’re a family law professional looking to better serve your clients, or if you’re navigating this yourself, let’s connect. Divorce is already complicated—your mortgage doesn’t have to be.

Schedule your consultation today.

Article sourced from https://www.divorcelendingassociation.com