Marriage and home-buying both bring potentially lifelong commitments to the table. However, backing out of these commitments isn’t always easy, so we’ve highlighted what you need to know to protect yourself and your property during a divorce.
Every year in the United States, there are almost 2.5 million legal divorces and a little over 5 million property purchases. What do these two staggering statistics have in common? They both relate to some of your most long-term life commitments. However, the unfortunate truth is that, after a divorce, settling matters and dividing your home is often a major headache.
Despite your divorce decree, which might stipulate which party is responsible for the debt on a home, from the lender’s point of view it is still joint. Because the creditor was not a party to the divorce decree, if one party defaults or files bankruptcy, the other is still responsible regardless of the language of the decree.
In the worst case that your home is underwater at the time of your divorce and you know you will not be able to keep up with payments, you may not be completely out of luck. While these can be hard to come by today, you can always try a short sale. If all goes well, your property will be sold and completely out of your hands so that both you and your ex-spouse's names are off the books.
The tricky part comes proving to the judge that your assets indeed remained separate throughout the course of your marriage. Even paying down your home mortgage with marital funds could muddy the waters for your case. These situations are considered transmutations, or when there is a change in the character of a property from separate to marital or vice versa. This is often as a result of commingling, which is the act of mixing two parties’ partitioned funds. So, if a spouse purchases a property in their own name but uses mingled funds to do so, that becomes a marital equity so it must be split equally at the time of divorce.
With that being said, not every asset is partitioned completely equally in court during a divorce. The judge will usually look at the assets and liabilities during your marriage and make his or her best determination as to how they would be equitably divided among the parties. In states with equitable distribution legislation, some property may be divided unequally but fairly. In states with “community property” laws, it is assumed that most property acquired during the marriage is automatically joint and therefore must be divided equally.