Considerations for divorcing couples with underwater mortgages

It was not so long ago that when a couple chose to pursue a divorce, one of the most sought-after and hotly contested items was the marital home. However, this is no longer the case for many divorcing couples as the real estate market has been in a prolonged slump for several years and many people are plagued by underwater mortgages.

For those unfamiliar with the term “underwater mortgage,” it essentially means that homeowners owe more on the mortgage than the house is currently worth, making it more of a liability than an asset.

Interestingly, divorcing couples with underwater mortgages are now left to contemplate a variety of options, including the following:


Financial professionals recommend divorcing couples consider taking advantage of programs such as the Home Affordable Refinance Program (HARP) that allow underwater homeowners to refinance.

Here, the mortgage would likely be refinanced under the name of the spouse who has decided to keep the home and this arrangement would need to be memorialized in the final divorce decree.

However, financial professionals also urge that refinancing the home in the name of one spouse may not be an option if they are lacking the necessary financial resources. In this scenario, they advise that divorcing couples consider paying down the overall mortgage balance to a level at which refinancing in the name of only one spouse can occur.

Short Sale

In this scenario, a divorcing couple would simply attempt to get their mortgage lender to authorize a sale of the home for less than that amount still owed on the mortgage.

Financial professionals advise, however, that many mortgage lenders may be hesitant to agree to this type of arrangement unless it’s fairly clear that the house will ultimately fall into foreclosure. They also advise that a short sale can have a negative impact on the credit of the divorcing spouses, showing up as a settled debt that was not fully paid.

Keeping the home

Another option for divorcing couples is to live under the same roof while leading completely separate lives. While this may sound hard to believe, it is becoming increasingly common in today’s tough economic times, providing couples with some much-needed leeway to determine how they want to proceed (refinance, sale of the home, another resolution, etc.).

To learn more about divorce or property division here in Texas, contact an experienced and skilled legal professional.

This post is for informational purposes only and is not to be construed as legal or financial advice.

Stay tuned for more from our Ft. Worth family law blog …

Source:, “Underwater mortgages and divorce” Nov. 11, 2011