Every day we here why unhappy spouses delay their divorces – waiting until the kids get older, waiting for that last family vacation, waiting for one last holiday together, waiting for mom or dad to finish online college, and waiting for the real estate market to turn around.
Waiting for the real estate market to turn around? Yes, we hear that one a lot because when people invest in a home, it’s usually the biggest investment in their life. The problem is that the real estate market changes. A stock market crash or a recession can impact home values as we all know, and if you want to get a divorce when your mortgage is upside-down, it can make you ponder, “Should I hold off on my divorce until I regain that equity?”
When a Home Has Zero Equity
For a home to be upside-down or have zero equity, the homeowners would owe more on the mortgage than the house is worth. While this can be a non-issue for families who don’t plan on moving, it can cause problems for divorcing couples who can’t sell the house. So, what do they do in this situation?
A Chapter 13 bankruptcy, a foreclosure, or a short sale are three options, but we don’t recommend them because they negatively impact people’s credit scores. But where does that leave divorcing couples? Though the following options aren’t ideal, they’re better than ruining one’s credit:
- One spouse remains in the home and the former spouses sell the house once the mortgage is no longer upside-down.
- The couple rents the home out and sells it when the real estate market turns around.
Do keep in mind that a house is upside-down, it may be unrealistic for one spouse to reapply for a mortgage in their name alone since there won’t be any equity, unless they have the funds available to pay the difference on the existing mortgage.