Divorcing With an Upside-Down Mortgage

If people always held off on their divorces until the stars were perfectly aligned, a lot of them would wait forever. As divorce attorneys, we’ve seen spouses delay their divorces for a number of reasons, such as a forthcoming family vacation, the holidays, a spouse’s impending raise, their youngest’s high school graduation, and so on.

Another reason why some people hold off on their divorces is the real estate market. If they have negative equity in their home (an upside-down mortgage), they may want to hold off on their divorce so they can walk away with some case in their pocket. But is this a wise move? Should couples time their divorce based on what happens in the real estate market?

What is an Upside-Down Mortgage?

An upside-down mortgage is where the homeowner owes more on the house than what it’s worth – it usually happens when the real estate market dips or even tanks. An upside-down mortgage can back married couples in a corner when they want to get a divorce but can’t afford to sell the house because they owe more than the market value of the home.

While two possible options are a foreclosure or a short sale, we don’t recommend them because they both affect people’s credit scores. If a couple wants to divorce, but it would be detrimental to sell their home, the best options are for one spouse to stay in the home and the house is sold later when market conditions are more favorable, or the couple rents the house out until they can sell it at a profit.

Unfortunately, when a divorcing couple decides to hang on to a marital residence until the real estate market heats up, the mortgage will stay on their credit until the house is sold, which can make it hard for them to qualify for another mortgage. But, if the couple truly needs a divorce, they may still be a lot happier than if they were still living under the same roof together.

Next: Dividing Property in a California Divorce

To schedule a consultation with an Orange County divorce attorney, contact Burch Shepard Family Law Group today.