MORTGAGE FAQS #4: Am I Free from my Ex's Debt?

Common Mortgage Myths & Their Impact with Divorce

by Bill Cook

MORTGAGE FAQ #4: Am I Free from Debt Awarded to my Ex in the Divorce?  

In this series entitled, WHAT ABOUT THE MARITAL HOME MORTGAGE?, Bill Cook dispels common myths.

Myth #4: 

You and your spouse had joint obligations such as car loans and credit cards prior to the divorce.  Per your divorce decree, you are no longer held liable for your obligations that per the written divorce decree, your ex-spouse is now obligated to pay.  Because it is in writing, these financial obligations will not be held against you by most lenders.

Reality #4:

Bottom line is that if you signed for the credit obligation with a lender (creditor), the Divorce Decree does NOT over rule the promissory note that was originally signed between you and that lender.  If an ex-spouse is applying for a mortgage loan in the future, the obligations that you signed for with a creditor will continue to be reported on your credit report as an obligation.  This could result with impacting your ability to qualify for a new mortgage loan in the future.  More importantly, the payment history of the credit obligation paid in the future by your ex-spouse as well as the balance owed can negatively impact your credit scores in the future.  

It is often a judgement call by the lender if they will accept that a person is not obligated on a consumer credit obligation if the divorce states that the ex-spouse will be responsible for the payment.  A lender will often ask for the divorce decree and also make sure that the credit obligation has never been delinquent in the recent year or more.

RECOMMENDATION:

As part of a divorce settlement, it is highly recommended that you review your credit report to identify what obligations are currently showing and determine which are legally your responsibility or your spouses individually and which are joint.  Keep in mind that these can affect your qualifications for credit in the future.  There are also times when a spouse may think an obligation is joint when in reality it was only to one individual (or reflected that way on credit).  If either party is thinking about refinancing or obtaining a mortgage for a new home in the near, it is always best to consult with a mortgage professional familiar with divorces for what will be considered for qualifications in the future.

Many thanks for this first article in a series of four on mortgage matters from by Bill Cook!

PLEASE NOTE: The view and recommendations expressed in this article are those of the author and do not necessarily represent the views of Banfield Couling Law & Mediation, PLLC or its staff.  This blog is not intended to constitute legal, financial or tax advice.  We do not recommend making important decisions of the type addressed in this article without specific legal or professional financial advice in advance.  We at Banfield Couling Law and Mediation PLLC are here to help navigate your legal matter at any stage of your divorce.