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During a Divorce, one of the hardest items to split fairly is the marital residence. For most people it is the single most expensive property they own as well as it is the place that they safely and comfortably sleep each night.
Splitting the home as well as the mortgage that is connected to it can be challenging, but it is possible to fairly split the home and allow for one of the spouses to solely take over their mortgage.
Arizona’s community property standard maintains that each spouse is entitled to an equal interest in all property purchased during the course of their marriage.
This equitable distribution standard requires a case-by-case assessment of what arrangement would be fair and just to each spouse under their specific circumstances.
How a marital residence can be split and paid for following a divorce:
- The marital residence can be sold and the profit split
- The marital residence can be awarded to one of the spouses on a temporary basis
- The marital residence can be awarded to one spouse so long as they buy out the other spouse’s interest in the home
- A loan assumption can be obtained by the spouse retaining the home
Dividing the Marital Residence
Under regular conditions of a divorce, the common property of the previously married couple is considered to be the property of both individuals and therefore will be divided fairly among them. During the process of deciding who gets what comes one of the hardest and most expensive items to divide fairly; this would be the marital residence.
The marital residence is not guaranteed to be given to either spouse during the course of a divorce, meaning that just because one of the spouses worked and contributed more financially towards the residence’s mortgage does not mean that they will be given the house.
The community property standard maintains that each spouse is entitled to an equal interest in all property purchased during the course of their marriage.
What is an Assumption Loan and How is it Used in a Divorce?
When a couple is divorcing and deciding how to split the marital residence, the two most common options to be considered are selling the home and splitting the profit, or having the home appraised and then one spouse gaining ownership of it and paying the other spouse ½ of the appraised value of the home.
If the couple decides that one of the spouses will retain ownership of their home and pay the other spouse their share of the appraised value, the spouse retaining the home will then be in charge of paying off any money owed on the home.
Once the issue of choosing who will retain the marital residence has been accomplished, the next big step will be determining how it will be paid. Previously, the home most likely would have been in both spouses’ names as well as they would have co-signed on the loan to purchase the home.
Moving forward, both names will no longer need to be on the title of the home as well as the loan as one of the spouses will no longer have any claim to it.
In order to change the names on the loan but nothing else, a loan may be assumed. When you assume a mortgage, you are taking over a mortgage payment from someone else (the other spouse) all the while keeping the current terms of that loan intact.
Once the assumption has been completed, you can then legally take over the monthly payments and the person you assumed the loan from is released from further liability and claims to the home.
What Will Assuming a Loan Do for Me Following My Divorce?
First and foremost, a loan assumption removes your former spouse from your mortgage. This means that they no longer have any claim to your home as well as they will no longer be required to make payments on it.
Then in addition to removing the former spouse, obtaining a loan assumption will then allow for you to keep the current interest rate and costs that were already agreed upon when the loan was obtained and not require you to refinance your loan.
How Will Assuming a Loan Impact My Credit Score?
When checking your credit before a decision is made on obtaining an assumption, the lending institution will perform a hard inquiry which will appear on your credit report and be seen by other lenders. The hard inquiry may lower your credit score, however the hard inquiry is not permanent and will disappear from your credit report in two years.
The loan being assumed will not impact your credit score until you have been granted the assumption and only then if you fail to make any payments will your credit be impacted.
Frequently Asked Questions
Q: How much does a loan assumption cost?
According to Bank of America, the average cost for a loan assumption ranges between $562 and $1,062 but does not include any third party costs.
Q: Can a spouse be removed from a mortgage?
If the spouse who keeps the house is approved for a loan assumption the other spouse will be removed from the mortgage and they will no longer be liable for a failure to pay.
Q: Does a loan assumption hurt your credit?
The loan assumption itself will not hurt your credit so long as you stay up to date on the payment, but your credit score can be impacted when the institution offering the loan checks your credit score.
Having an experienced attorney on your side to walk you through your options while dividing marital property and deciding how your home will be paid for in the future can prove to be the cost-effective and time saving tool you need to simplify your divorce.
If you are going through a divorce, the to-do list is often hauntingly large and full of things that require more time to complete than you have to spare. If this is the case, allow an experienced tax and family law attorney to help you accomplish that which needs to be done.
Call the Family Law Team at (480) 467-4348 to discuss your case today.
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