Separation or divorce are complex processes that affect not only the emotional level but also the financial level. When it comes to a divorce with children and/or a mortgaged home, the decisions made can have lasting implications. In this article, we address the main legal and financial issues that arise in these cases, with particular attention to the ownership of the loan, the ownership of the home, and the use of the family home.
In a divorce, who gets the house? What happens to the mortgage?
It is important to distinguish between a mortgage and a home loan.
Legally, a mortgage is a real charge registered in the Property Registry that guarantees the fulfillment of an obligation (usually the payment of a loan).
The mortgage loan, on the other hand, is the financial contract signed with the bank. After a separation or divorce, the mortgage loan remains in effect and must be repaid by the borrowers, regardless of their marital status, whether they live in the mortgaged home, or whether they continue to own it. In other words, the obligation to repay does not disappear with the separation or divorce. Both borrowers will continue to be obligated to repay the loan, and the bank will initially require them to repay it, regardless of who lives in the home or who owns it, unless the bank agrees to release one of the borrower spouses after the divorce, which requires their express approval.
Loan ownership vs. home ownership
The loan holders don't always match the homeowners. For example:
The property may be owned solely by one of the spouses, but both may be listed as borrowers.
A third party may own the property and act as a non-debtor mortgagor or guarantor.
In any case, the person obligated to pay the mortgage loan will always be the person listed as the borrower in the deed signed before a notary.
Marital economic regime and property
The marital property regime influences the ownership of the home:
Separation of property: The home will be the sole property of the person who acquired it, and may belong to one or both spouses.
Joint property : The property acquired during the marriage is owned by both spouses as joint property.
Furthermore, if the home is the marital home, the non-owner spouse may have usage rights. For example, in the case of a divorce with children, the judge may assign the use of the home to the custodial parent, even if they are not the owner.
Who pays the loan if there are children?
In a divorce involving minor children and a mortgaged home, it's common for the judge to assign the use of the family home to the parent with custody. However, this does not change the loan repayment obligation, which remains with the holders of the loan. Even if the custodian is neither the owner nor the borrower, the bank will not change the loan terms unless expressly agreed upon.
What happens if someone wants to keep the house?
A common option is the termination of joint ownership , which allows one of the co-owners to retain 100% of the home. However, this is only possible if both co-owners are joint owners (for example, 50/50). In the case of joint property, the marital partnership must first be liquidated.
Furthermore, the termination of the joint ownership does not automatically mean that the loan will be transferred to the new homeowner's name, even if they have indicated that they will assume payment. The bank must accept the modification through a novation or subrogation. If the new owner lacks sufficient financial capacity, the bank may deny the change and retain both as borrowers.
What if the other person doesn't pay?
If the loan is joint and several (as is often the case with more than one borrower), the bank can demand full payment from any of the borrowers. Therefore, it is essential to negotiate any change in ownership of the loan with the financial institution.
In summary
Each separation or divorce case is unique and may involve multiple combinations of property, loans, financial arrangements, and custody. Therefore, it is essential to have specialized legal and financial advice before making decisions that affect the family home.