Real estate financing markets roil with the slightest hint of news. Recently, even amid a strong economy, as reported in the Washington Post “the 30-year fixed-rate average [for mortgages] shot up to 3.73 percent.”1 This happened because the Federal Reserve nudged its rate higher. You may not be a financial wizard, but if you are divorcing in Virginia, you face a dilemma: must you refinance your home after your divorce is final?
Is Refinancing Required by Law After Divorce?
No Virginia law requires a divorcing couple to refinance a home after divorce. Depending on the names on the title, and, separately, on the mortgage, you may need to make some arrangements to have only one of you take legal title to the house, but that is a separate issue.
Before worrying about any of this, double-check whose names are where. Both names could be on the title but only one name is on the mortgage. If, for example, you were the primary earner and she was raising your children, you alone may have applied for the mortgage. If you were both earning income, both names could be on both instruments.
If you and your departing spouse can work out suitable arrangements, write them into the property settlement agreement, and have a Circuit Court judge sign off on it, you can continue with your current mortgage. If you own the home outright, you can keep your possession of it protected through the property settlement agreement.
Buying a Spouse Out of the Home
If the law is silent on a requirement to refinance, why would you want to? For most people, a home is the single largest purchase of their lives. Unless you are awash in Monets and Van Goghs, your home may be the only way to get some cash out for uprooting and resettling both your lives.
You and your ex-wife may need money to pay rent elsewhere, to relocate to another city for a new job and a fresh start, or to buy a more reliable vehicle for commuting. You may need cash on hand to make monthly child support payments, pay your attorney’s fees, or start spousal support.
Another excellent reason to refinance after divorce is for one spouse to buy the other out of the home entirely. A titled home in both names is considered marital property under Code of Virginia § 20-107.3. Buying one spouse out can benefit the children, so they enjoy uninterrupted use of the family home. The property settlement agreement may say something akin to this:
“Acknowledging the desire of both parties to preserve the family home for the continued use by the children, Wife agrees to pay Husband 50 percent of the home’s appraised value, assume the mortgage, and take exclusive title to the home.”
Where is the wife going to get 50 percent of the appraised value of a $250,000 home? She can sell those Monets and Van Goghs she has lying around, or she can refinance. She may have to take on a ridiculously huge mortgage that gives her $125,000 — or even a hefty portion of that amount — as cash to buy out the husband.
For most homeowning parents, divorce is a setback along their road to financial freedom, since, perhaps, 15 years of paying down a mortgage may be wiped away in the refinancing. The wife in this situation may have to take on a new, 30-year mortgage and start over.
Divorce & Your Credit Score
Divorce usually dings your credit score. Where a lender may have seen two incomes feeding your debt, now it sees one. You may have trouble finding low-rate auto, personal or unsecured loans (credit cards).
Some factors affecting your credit score:
- Debt to Income (DTI) ratios change when your ex-wife departs the financial picture; if she was the primary breadwinner, you could take a serious hit on your creditworthiness
- A ticked-off ex-wife could lay marital waste to your assets by running up huge bills during the divorce proceedings; while she may eventually be saddled with that debt, the process to disentangle yourself could take years
- If your ex-wife was the primary breadwinner and most lending accounts were exclusively in her name, you may have little or no credit history of your own
What Are the Alternatives to Refinancing After Divorce?
Reviewing that $250,000 home, if the couple has additional assets appraised at half the equity in the home, alternatives to refinancing may be possible:
- In the property settlement agreement, Mom could get the family home while Dad gets the RV, ATVs, vacation cabin, and boat
- You can ask the lender for a release of liability to get your name off the mortgage
- Dad could keep the family home while Mom takes the savings accounts and Certificates of Deposit or stocks
For questions about financial arrangements, property settlement, and other aspects of divorce, turn to The Firm For Men. Contact us online or telephone our Virginia Beach office at 757-383-9184 today!