Maybe it started out like "Love Story," but as the years passed perhaps it ended up like "All Too Well" or "Death by a Thousand Cuts." Close to half of all marriages end in divorce or separation, and if you're facing that reality in 2025 there are plenty of financial ramifications whether or not you're listening to Taylor Swift to ease the pain.
In most divorces, the biggest asset that needs to be divvied up is the family home. If you still have a mortgage—which roughly 60% of homeowners do, according to a 2022 Bloomberg analysis of U.S. Census Bureau data—you have to figure out what to do with the loan.
There are a handful of ways to deal with the situation: selling the home, one person assuming the mortgage, refinancing, leaving the loan as it is, or trading the home for some other asset of similar value. Below, we'll discuss these five different ways of handling a home with a shared mortgage during a divorce.
What happens to a shared mortgage after a divorce?
The two most common paths forward are for the house to be sold, in which case the divorcing parties split the proceeds, or for one person to buy the other out and refinance the mortgage. But there are other solutions in specific cases, such as when one person can assume the existing mortgage or when the house is just one of multiple valuable assets to be divided.
Your options depend on how willing you and your former spouse are to negotiate. “I have seen people make decisions that make no sense because it’s a way of spiting the other side,” says Claudia Cobreiro, founder of the Florida-based firm Cobreiro Law.
In one case Cobreiro worked on, the divorcing spouses could not reach an agreement and the house went into foreclosure as a result. “[That was] one of the craziest situations I’ve seen in my career,” she says.
1. Sell the house and split the proceeds
In some instances, the easiest option is to simply sell the home and split the profits. However, you'll need to discuss the timing of the sale—either before the divorce case is closed or afterward—as well as sharing the responsibilities of preparing the home for sale.
You'll also want to account for the costs related to selling the house, including repair costs, real estate agent commissions and taxes.
“From a practical standpoint, it is often better to sell a home before finalizing a divorce,” says California-based Alphonse Provinziano, founder of Provinziano & Associates and a fellow in the International Academy of Family Lawyers. “Doing so allows the parties to mutually agree on the division of proceeds and simplifies the asset split.”
Selling the home is likely worth considering if:
- You don't have children whose school and activities could be impacted by moving.
- You're both financially able to find suitable housing elsewhere on your own.
- Neither person wants to remain in the previously shared home.
If you and your ex can’t reach an agreement, and the case goes to court, a sale of the home and a splitting of the proceeds is likely to be the court-ordered solution, according to Cobreiro.
2. One person assumes the mortgage
If you agree that one party will remain in the house, they may be able to assume the mortgage. But that depends on whether the mortgage contract allows the person remaining in the home to remove their ex from the loan and take full control of the property.
This option can be attractive because it allows the person keeping the loan to maintain the existing terms. If the mortgage has, say, a 3% interest rate, this option is particularly appealing in today’s environment. But know that there are still some assumption-related costs that you may need to share.
Also, not all mortgage loans are assumable, so you'll need to check with the lender before pursuing this option. A big caveat is that conventional loans are generally not assumable, so assuming your existing shared mortgage may only be an option if you have an eligible government-backed loan. And if the lender does allow it, the person assuming the loan will still need to meet credit and income criteria to get approved.
You'll also need to discuss splitting the current equity in the home. Options may include paying the difference with personal savings or negotiating with other shared financial assets, such as retirement or investment accounts.
This option can be worth considering if:
- The loan is assumable.
- You have children and want to maintain as much stability as possible.
- One person can't afford other housing but can afford the existing mortgage payment.
- One person simply wants to stay in the home.
- The person planning to remain can meet the lender's credit and income requirements.
- The loan's interest rate is lower than current market rates.
3. Refinance to remove one person from the loan
A path that allows one person to stay in the home, and is more common than a mortgage assumption, is for the remaining owner to refinance the mortgage loan into their name only. A refinance can be understood as essentially taking out a new loan to replace the old one.
The person planning to refinance will need to undergo a full credit and financial evaluation to get approved. Opting for a cash-out refinance might even make it easier to pay out the equity owed to the other party. However, you may need to discuss splitting closing costs.
Be aware the new loan could end up with a higher interest rate than the old one, since you apply for a refi based on current market conditions. This may be especially likely to hold true for folks who bought a house during pandemic-era mortgage rate lows.
Refinancing may be worthwhile if:
- The loan isn't assumable.
- You have children and want to maintain as much stability as possible.
- One person can't afford other housing but can afford payments on the existing home.
- One person simply wants to stay in the home.
- The person planning to remain can meet credit and income requirements to refi.
4. Keep the existing mortgage in both names
In some cases, it could make sense to leave the original mortgage loan intact, with one party remaining in the home or both ex-spouses moving out and agreeing to keep it as a rental property.
That said, this may be the most complicated option because it requires you to negotiate about who's responsible for the monthly payment and ongoing maintenance and repair costs, as well as how and when to split the equity.
It's also important to keep in mind that having a mortgage loan on your credit report can make it difficult to get approved for another mortgage, even if you're not living in the home anymore. It's possible, but you may need to meet additional requirements.
Here are some factors that may indicate this is a worthwhile option for you to pursue:
- There's a significant financial disparity between the two parties.
- The person remaining in the home can't assume or refinance the loan into their name.
- You have children and want to maintain as much stability as possible.
- You want to keep the home as a rental property.
5. Trade the house for some other asset of equal value
If there’s another asset or assets of similar value to the house, the separating partners may agree to trade. For example, if one person has a retirement account of similar value to the equity in the home, they may offer that in exchange for the home.
However, Provinziano of Provinziano & Associates recommends approaching such arrangements with a cautious eye. “While this may appear to be an even exchange on paper, it often disadvantages the non-working spouse—often the homemaker, who is frequently a woman,” he says. “Retirement funds represent a future income stream, whereas a home, important as it is, is still just a single asset that can be sold or replaced.”
If you do choose to consider this route, it might be for some of the following reasons:
- You have a strong preference for either the house or the other assets.
- Perhaps you have other retirement savings to act as a buffer.
- There are multiple properties being divided between you and your ex.
What happens when an ex won’t negotiate?
As with any other aspect of the divorce proceeding, you may run into issues when negotiating about what to do with what was once your marital home.
If your soon-to-be ex refuses to work with you at all, you can hire an attorney or pursue mediation. In fact, your state may require mediation in certain cases before you can proceed any further.
In situations where there’s still no agreement at that point, the divorce may need to go to trial and a judge will decide for you. In most cases, you can probably expect the court order to involve selling the home and splitting the proceeds because it's the simplest option.
Cobreiro Law encourages clients to try to reach an agreement rather than going to trial due to the time and expense of the latter route.
“I don’t like to be litigious for no reason, especially if the outcome will not be more advantageous to my client,” Cobreiro says, noting that a trial can add approximately $15,000 to $20,000 in additional costs.
Do you need a quitclaim deed?
A quitclaim deed is a document that transfers the title of the home from one person to another. You may consider a quitclaim deed if one former spouse is remaining in the home and taking over both the loan and full ownership of the home.
Tax implications of selling your house after a divorce
When you sell a home, the gains you receive may be subject to taxes. Here are some considerations as you evaluate your options.
Exclusions
If you meet certain requirements, each party can exclude up to $250,00 of the shared proceeds from their taxable income. There are a handful of criteria, but one notable one is that you must have lived in the home for at least 24 months out of the last five years.
If one ex-spouse stays in the home with the condition that they share the proceeds upon sale, the other person may still be able to treat it as their residence for tax purposes. More specifically, this can be an option if they're the sole or joint owner of the home and the divorce decree allows the former spouse to stay in the home.
Even if you don't qualify for the full exclusion, you could get a partial exclusion as a result of the divorce. It's best to discuss your situation with a tax professional to understand your potential tax bill.
Tax rates
Sales proceeds from a home are considered capital gains, which come with different rules compared to other types of income.
In particular, if you owned the home for less than a year before selling it, your taxable gains will be subject to your ordinary income tax rate, with marginal rates ranging from 10% to 37%, depending on your tax bracket.
However, if you owned the home for more than a year, any taxable gains will be subject to a lower long-term capital gains tax rate, which can range from 5% to 20% based on your tax bracket.
Will a divorce impact your ability to buy a new house?
It is possible for divorce to affect your options when buying a new house. This is especially true if there's a significant discrepancy between the partners’ incomes and credit scores. It can also occur if the person moving out remains on the loan.
One key thing to know is that it’s possible to include alimony and child support on a mortgage loan application if the payments are steady and reliable. For example, the lender may require that you expect at least three more years' worth of payments and show that your former spouse pays on time.
Protecting your credit during a divorce
While the divorce process itself has no bearing on your creditworthiness, disentangling your finances can potentially have an impact on your ability to pay your bills, which could negatively impact your credit score.
What's more, keeping the original mortgage loan intact might pose a threat in the long run. For example, if the person responsible for the monthly payment intentionally or accidentally fails to pay on time, it could hurt the other person's credit score if the loan is still on their credit reports.
To mitigate this risk, consider including a clause in the divorce decree that the home must be put up for sale immediately if the responsible party doesn't pay on time. You can also specify that the person remaining in the home must assume or refinance the loan on their own within a reasonable time.
Also, be sure to notify your lender about the divorce and make it clear who's responsible for making the payments. This could potentially protect the other person from credit score damage.
Ben Luthi contributed to this article.
