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A home equity loan is a popular way for married couples to access some of the equity they have built up in their home. Generally, because marital residence is regarded as a couple’s joint property, and home equity loans are secured against this property, any such loan will be a joint responsibility.
This responsibility is unaffected by divorce: If you were jointly responsible for repaying a home equity loan before you divorced, you would still be liable to repay it afterward. That said, several ways of working with home equity loans during a divorce can simplify your finances and responsibilities. For instance, you might be removed from the loan if the creditor releases you or your former spouse refinances the loan and removes your name.
Key Takeaways
- Home equity loans are a popular way for married couples to access some of the equity in their joint home.
- Because married couples legally own their home together—even if there’s only one name on the mortgage—home equity loans are also a joint responsibility. After a divorce, home equity loans remain a joint responsibility.
- It’s important to check if there is an outstanding home equity loan against your property during your divorce.
- It’s also possible to explicitly state that one partner is responsible for the loan during your divorce proceedings.
Home Equity Loans During a Divorce
In general, home equity loans are unaffected by divorce. This means that if you took out a home equity loan with your partner, you are jointly responsible for it even after divorce. So, you are responsible for making repayments on the loan and any missed payment will affect your credit score. It also means that your creditor (e.g., your bank or credit union) still holds a lien on your home and can reclaim it if they foreclose on the loan.
If you had a home equity loan as a married couple, it’s almost certain that you are both responsible for it. If you live together as a married couple in a house with a mortgage attached, it is regarded as your marital residence and thus as your joint property, even if only one of you is named on the mortgage.
When you applied for your home equity loan, it’s very likely that your lender or broker required your spouse’s signature on any instrument necessary to make the property offered up as security available to satisfy the debt if you fail to repay it. For example, a lender or broker may have required your spouse to sign an instrument to create a valid lien or pass along a clear title.
Be aware, however, that in some cases, it’s possible to take out a home equity loan without the express permission of a spouse—either because a mortgage lender doesn’t require a signature from both of you or via deception.
Make sure you perform a title search as part of your divorce proceedings. This will show if any home equity loans have been taken out against your home.
Home Equity Loans After a Divorce
The default approach to property during a divorce is to split it evenly between the parties. Taking this approach for a home with a home equity loan attached would divide both the home equity and the loan evenly. After the divorce, both parties would own half of the equity that had been built up in the home, but both would also share responsibility for repaying the home equity loan.
In practice, it’s common for one ex-partner to continue living in the marital residence. If that’s the case, it’s possible to specify in your divorce decree that the partner who stays in the house will assume full responsibility for the home equity loan. Alternatively, it’s possible to keep the home as jointly owned for several years, refinance the home once more, and use the resulting funds to buy one partner out of the home.
What Happens to a Home Equity Loan in a Divorce?
In general, home equity loans are unaffected by divorce. If both you and your ex-partner were responsible for paying off the loan before you split, you will be responsible for repaying it afterward unless your divorce proceedings explicitly state otherwise.
Can One Spouse Get a Home Equity Loan?
It’s very difficult for one spouse to get a home equity loan without the consent of the other because the house that secures the loan is regarded as joint property, even if there’s only one name on the mortgage. That said, it’s important to carry out a title search for your property during a divorce to make sure your spouse hasn’t taken equity out of the house via deception.
Can One Partner Take the Home Equity Loan?
Yes. It’s possible to give responsibility for a home equity loan to one partner as part of your divorce decree. Alternatively, you can refinance your home as part of your divorce financial arrangements and use the cash to buy one ex-partner’s home equity.
The Bottom Line
Home equity loans are a popular way for married couples to access some of the equity in their joint home. Because married couples are legally considered to own their home together—even if there’s only one name on the mortgage—home equity loans are also a joint responsibility. After a divorce, home equity loans remain a joint responsibility.
It’s important to check if there is an outstanding home equity loan against your property during your divorce. It’s also possible to explicitly state that one partner is responsible for the loan during your divorce proceedings.