Should You Refinance Before Divorce?

28 Jun Should You Refinance Before Divorce?

Divorce can be an expensive process and it changes your life financially after. If you know your marriage is heading towards its end, you might be considering refinancing.

Refinancing is the replacement of an existing debt obligation with another debt obligation under a different term and interest rate. It usually involves the mortgage on a house or another kind of property. When it comes to the divorce, figuring out outstanding debts and what happens to your home are large decisions to make.

What Happens to the Debt?

Debt is something that never leaves you, regardless of your marital status. When it comes to the mortgage, if it is in both of your names, you are both responsible for its payment. This also means that if the payment goes into default, you are equally affected.

Paying off the mortgage on a house with an ex-spouse is not an ideal situation, especially since one of you will no longer live there. Plus, it will keep you tied financially to your ex in a risky way. The way to avoid it is by either selling the house completely or refinancing it.

The Future of the House

In order to figure out whether you should sell the house or refinance, you need to discuss the future of the house with your ex. Who gets to keep it? Are you going to sell it? Selling makes it easier to separate financially. But it might not be the best option for you and your ex. If there are children involved that you want to stay in the school district, you live near family, or you want to keep your kids in the same house they have been in, one of you might want to keep the house.

In this case, you will need to transfer the ownership of property. This person will be responsible for the house payments themselves – which is something to keep in mind as well. In deciding who can keep it, that person must be able to afford those payments.

If you decide that refinancing works best for your situation, there are a few options with timing.

Jointly Refinance Before Divorce

You can jointly refinance before the divorce. This is beneficial because you will have two incomes and therefore a lower debt to income ratio. Combined you will also have a higher credit score.

If you decide to go this route, you need to be in agreement with what happens with the house after. In this case, both parties are responsible for the mortgage. Having everything in writing is critical.

Refinance Solely in Your Name Before the Divorce

If your income and credit score are high enough and there is enough equity in the house, you can refinance the mortgage solely in your name. Your ex can utilize this option as well.

Texas is a common law state, meaning you can take on individual debt without using any of your spouse’s information. If you have the financial means to qualify for a mortgage solely in your name. In this case, rights to the house are given up by the other spouse.

Texas is also a community property state, so assets and debts acquired during the marriage are joint property and joint liability.

Refinance After the Divorce

If you refinance after the divorce, you can get sole ownership from your ex of the home. If anyone wants to own the house solely, this is the best option. The person who solely owns it now oversees the mortgage.

Do You Need an Attorney?

Figuring out the future of your home is a big decision. Having an attorney discuss the various financing options can help you decide. Navarette Bowen P.C. in downtown Denton can help you with this decision. We have a team of experienced divorce lawyers that can help. You can contact us to set up a confidential consultation to discuss your circumstances and receive guidance.