Home Equity Loans and Divorce

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.

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.

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.

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.