What Happens During Divorce If We Owe More of the Mortgage Than What the House Is Worth?

 Posted on May 26,2023 in Divorce

Property division is an essential aspect of the Illinois divorce process. For many divorcing couples, their home is the most valuable asset they own. Unfortunately, in these difficult times, many people owe more on their mortgage than their house is worth.

If you find yourself in this predicament, you may have questions about what happens to the home and the mortgage during your divorce. The answer to this question depends on many factors. Read on to learn more.

How is an Upside Down Mortgage Handled During Divorce?

Typically, there are two main ways that divorcing spouses address the equity in their home. In some cases, the couple sells the house and divides the proceeds between them. In other cases, one spouse buys out the other spouse by retaining ownership of the home and compensating the other spouse with other marital assets, such as bank account balances, retirement assets, or vehicles.

If you are upside down on your mortgage, you do not have any equity to split. Your home essentially has a negative value, which means you will need to address this debt during the divorce process.

For the purposes of divorce, debts are handled the same as assets. If the home is considered marital property, and most homes are, both of you are responsible for the mortgage debt.

One Spouse May Keep the Home and Take Over The Mortgage Payments

The real estate market fluctuates, and depending on your financial and family circumstances, it may be best for one of you to keep the home. If one spouse can manage the mortgage payment on his or her own, he or she can keep the house and continue making mortgage payments.

If you decide to go this route, you will want to ensure that your marital settlement agreement includes language indemnifying the nonowner against the mortgage debt.

You Could Sell the Home Through a Short Sale or Seek a Deed in Lieu of Foreclosure

Another option you may want to consider is selling the home through a short sale. A short sale occurs when a home is sold, and all the proceeds go to the lender. In exchange, the lender might forgive the remaining debt. A deed in lieu of foreclosure may also be used to relieve divorcing spouses of the mortgage debt.

Each case is different, so it is best to seek guidance from a qualified real estate agent as well as a divorce lawyer to determine what is best for your particular situation.

Contact an Arlington Heights Divorce Lawyer For Help

Our Arlington Heights divorce attorneys can guide you through the divorce process and help you explore all your options. Call our office at 847-749-4182 for a confidential consultation.

Source:

https://www.ilga.gov/legislation/ilcs/documents/075000050k503.htm