Who is paying the mortgage?
Who is responsible for the debt?
Here is a common scenario. A husband and wife own a home in Madison, Mississippi. They finance $300,000 of the $350,000 purchase price with a lender. The mortgage is in both of their names. A year after they purchase the house, the husband wants a divorce. The husband moves out of the house in Madison and moves into a house in Brandon. As part of the divorce settlement, the divorce decree states that the wife will take possession of the home in Madison and is obligated to pay the mortgage. The husband thinks he is in the clear. However, the original note on the Madison home is not refinanced. About a year later, the wife quits making payments on the house in Madison and the mortgage goes into default. The result: The lender can sue both the wife and husband for the debt and probably will despite the fact that the divorce decree says that the wife is responsible for making the payments.
This is one of the financial scenarios of divorce discussed in a USA Today article yesterday. There is a common misunderstanding many have on who is responsible for the debt. In Mississippi, if that debt was incurred by both of you during your marriage (both of your names are on the mortgage or both of your names are on the credit card account), although the divorce decree may state one spouse is responsible for paying the debt, if that spouse quits paying, both spouses credit will be impacted and the holder of the note (bank or credit card company) can sue both for the debt. The divorce decree does not change the legal obligation you have to the lender. What can you do to ensure this does not happen?
One option is for the husband to require the wife to refinance the mortgage. This would be a new loan with only her name on the loan. The practical problem is that many individuals can not qualify for the loan on their own. In such a case, the better choice may be to sell the house as part of the divorce. Otherwise, both spouses will still be legally obligated to the lender for the mortgage despite the divorce decree saying only one spouse is responsible for the debt. As a side note, credit cards are a bit easier as you can close the account or remove one spouse from the credit card account. Again, until that debt which was incurred while you were married is paid off, both spouses could be responsible for the whole debt. It will depend on when the debt was incurred and by whom.
Another option is for the husband (assuming he has the financial ability) to pay the mortgage payments to prevent a foreclosure. He could then sue his ex-wife for the debt. The divorce decree is an enforceable contract between the two spouses. While the husband would have to continue making payments to keep the mortgage current in order to save his credit, it would ensure that his credit score is not damaged by a foreclosure and hopefully he will ultimately recover the money from his ex-wife.
If you are contemplating a divorce, you need to consult with a divorce attorney to ensure you understand the financial implications of divorce and not walk into a financial minefield where you credit is ultimately destroyed.
