Traditionally, being awarded the house in a divorce settlement is a good thing. But in the current economy many Colorado couples are divorcing under less than traditional circumstances, and when the house is in an underwater mortgage, meaning more is owed on it than it's worth, getting the house isn't necessarily a good thing. But whether a house is an asset or a liability, when divorce happens a decision about the house needs to be made.
One thing a couple can do is simply sell the house; however, instead of getting back money from the sale, this particular move can lead to a property division involving increased debts for both parties. This can happen as part of a regular sale or a short sale, where the bank agrees to a sale of the home for less than the actual balance of the mortgage. A short sale will negatively affect both people's credit scores, but is not as bad of a hit as a foreclosure.
Another possibility is to let one person keep the house in their name, while other aspects of the divorce settlement are arranged to offset the financial burden posed by the acquisition. This may be settled with the division of marital property other than the house, including vehicles or other big ticket items or accumulated wealth. It may also involve the person receiving alimony in order to allow for the increased expense. In these cases, the new sole owner will often refinance to try to reduce payments.
In some cases, Colorado couples will even decide to continue to live in the house together as roommates until they can afford to reduce their liability and hopefully break even on the house. This option is not for every couple, because it allows for a great deal of understanding on the part of both parties as each seek to move on with their lives.
These are hard economic times. Financial security can be a source of great fear for divorcing parties, meaning that it is crucial when going through the divorce process to work with experienced legal and financial advice before making any final decisions.
NASDAQ: "Underwater Mortgages and Divorce," Kara Johnson, Nov. 11, 2011