When Rick Buchler and his wife split up two years ago, they decided she would remain in their house near Stockton, California, and he would leave.
The couple had no children, and Buchler's wife, a pediatrician, wanted to stay in the marital four-bedroom home with an in-ground pool since she could manage the mortgage payments.
"The divorce settlement said specifically that I am no longer liable for the home," Buchler says.
His bank didn't see it the same way. When Buchler, 40, applied for a loan a month ago to buy a condo in downtown Chicago, he learned that his name was still on the mortgage - despite deeding the title to his ex and giving the mortgage lender a copy of the divorce settlement.
"I was told that my ex had to reapply for a different mortgage under her name only - for a nice $5,000 in additional fees," says Buchler, who recently started a consulting business.
As Buchler discovered, divorcing couples should map out their property-division plans carefully and have solid legal representation to navigate mortgage contracts.
What will happen to the marital home? This is a question that many divorcing couples face. Indeed, it's one of their top concerns, after worries about the impact of the split on kids and on finances, according to an August survey by the legal site Avvo.com.
Here are some tips to help you answer that question if you're going through a divorce:
BOTH PARTIES WANT TO SELL
If you're selling the home and there are profits to split, it's a relatively straightforward process.
Divorcing couples need to agree to the listing price, a schedule for showing the home and a plan for dividing expenses pending any sale, says Jennifer Brandt, a Philadelphia divorce attorney.
"Once the home is sold, the parties need to decide if the proceeds will be escrowed or distributed," she says.
Taxes figure into the equation, too. Check on your exposure to capital-gains tax after the divorce, for example, says Heidi Opinsky, a divorce attorney in Connecticut.
It gets more challenging if the couple doubts the home can be sold profitably.
In this case, selling and taking a loss may be the only option if the divorce is messy and everyone wants to wash their hands of the marriage, or, one person could stay in the home temporarily as the other moves on, with both agreeing to split the cost of an eventual sale and any profits or losses incurred.
If it's an amicable divorce and both parties want to leave and can afford to, rent out the home and be co-landlords, suggests Gloria Shulman, owner of a licensed mortgage brokerage firm in Beverly Hills, California.
If one person is going to be the main landlord who will be dealing with the tenants, it may be prudent - depending what state law allows - to both agree to sell the house, with a greater share of profits going to the spouse who is the main landlord, to compensate for their time.
ONE PARTY WANTS TO KEEP THE HOME
Try refinancing in the name of the person who wants to stick around. If there's equity in the home, this can be a viable option.
"The home will be appraised, and the spouse who keeps the home will pay an 'equalization payment' to the other spouse, which is half of the equity," says Kelly Chang Rickert, a Los Angeles divorce attorney.
Shulman offers a hypothetical case of a separated-but-divorcing couple, with a house that they bought for $800,000, that has $200,000 left on the mortgage.
With each party entitled to $300,000 in equity, the couple could secure a $500,000 cash-out refinancing in the inhabiting spouse's name.
"If the inhabiting spouse cannot qualify for this loan amount on his or her own, and we are dealing with an amicable couple, we could obtain the loan in both spouses' names," Shulman says.
After the divorce, you can usually redo the loan - as long as you can document 12 months of canceled mortgage checks from an individual account.
"The divorced spouse who has moved out of the property can then fall off both loan and title," Shulman says.
IF YOU CAN'T AGREE
Here, things can get messy. If one person wants to keep the home and the other wants to sell, or if both want to stay, the court may have to intervene.
The stakes could be low in some battles, involving questions like whose broker should be used. Sometimes, each spouse will retain a broker and the two brokers will split the commission.
Sometimes, the stakes are higher. Several clients of Jacky Teplitzky, a real estate broker in New York City, built interior walls in their homes under court order, to separate the separated couple as they waited to work things out.
That isn't a smart approach to selling a house. In one couple's case, "legal fees basically ate their house's profits from the sale," Teplitzky says.
The ultimate challenge for Teplitzky is selling a home where one spouse still lives and has no desire to move.
In one case, with court order in hand to show a home, Teplitzky walked prospective buyers around an apartment that was a complete mess, with music blaring loudly and neighborhood kids running around.
"(The remaining spouse) did everything in her power to make it difficult to sell," Teplitzky says.
The home was eventually sold - for a profit - after 18 months.