When Is a Mortgage Refinance Needed in a Divorce?
In many divorces, the marital home—or other jointly owned real estate—carries an outstanding mortgage. When one spouse is awarded the home through settlement, mediation, collaborative law, or trial, the property and its associated debt must be addressed in a way that protects both parties moving forward.
Transferring ownership alone is not enough. Even after the divorce, lenders continue to hold both spouses financially responsible unless decisive steps are taken to remove the non-receiving spouse from the mortgage. This is where a mortgage refinance often becomes necessary.
Quit Claim Deed vs. Mortgage Refinance: Two Separate Legal Actions
When real property changes hands in a divorce, two distinct issues must be addressed:
1. Ownership (Title)
To remove the spouse who is not receiving the property from the title, a Quit Claim Deed is typically required. This deed transfers ownership from both spouses to the spouse keeping the home.
2. Debt Responsibility (Mortgage)
To remove the non-owner spouse from the mortgage, a refinance or mortgage assumption is needed.
A Quit Claim Deed does not remove a spouse from the mortgage loan—even if the divorce decree awards the home to one spouse.
This distinction is crucial. Many individuals mistakenly believe that a Quit Claim Deed alone resolves the issue, but without refinancing, both spouses remain legally responsible for the mortgage debt.
Why a Mortgage Refinance Is Usually Needed
In most cases, lenders will not release one borrower from a mortgage simply because a divorce decree says so. Mortgage companies have no legal obligation to honor divorce judgments because the loan contract predates the divorce.
Therefore, a refinance is typically required so the spouse retaining the property can obtain a:
New mortgage
In their name alone
Often with updated interest rates and loan terms
A refinance ensures the non-receiving spouse is free from future financial liability tied to the property.
When Is a Mortgage Assumption an Option?
In limited situations—usually when the retaining spouse has excellent credit and meets strict lender qualifications—a mortgage assumption may be allowed. This is a process where:
The existing mortgage remains in place
One spouse assumes full responsibility
The other spouse is formally released
However, assumptions are far less common than refinances and are heavily dependent on lender policies and the type of loan.
The Role of the Divorce Decree and Separation Agreement
To proceed with refinancing, lenders typically require:
A copy of the divorce decree
A copy of the separation agreement
These documents must clearly state:
Which spouse is receiving sole ownership
Which spouse is responsible for refinancing
Any deadlines for completing the refinance
Clear language protects all parties and ensures lenders have the legal documentation they need.
Steps to Complete a Mortgage Refinance During Divorce
1. Identify the Spouse Receiving the Property
The divorce decree must reflect sole ownership.
2. Find a Qualified Lender
The spouse retaining the home should:
Consult multiple lenders
Compare interest rates
Review closing costs and fees
Ensure affordability based on their post-divorce income
3. Prepare the Quit Claim Deed
The deed transfers title into one spouse’s name. It is executed and filed as part of the refinance package.
4. Complete the Refinance
The receiving spouse completes the loan process, and the original joint mortgage is paid off.
5. Confirm Both Title and Mortgage Are Updated
Only when both steps are completed is the non-receiving spouse fully released from ownership and debt obligations.
Why Refinancing Protects the Non-Receiving Spouse
If the mortgage is not refinanced and remains in both names, the spouse who moves out still faces substantial risks:
Credit damage if payments are late
Legal liability for missed payments
Negative impact on debt-to-income ratios
Foreclosure appearing on their credit report, even if they no longer live in the home
Difficulty obtaining future loans or housing
Because of these risks, many divorce agreements include:
A deadline for refinancing
A requirement that the home must be sold if refinancing does not occur
Provisions protecting the non-owner spouse from delays or nonpayment
These safeguards prevent ongoing financial entanglement after the divorce.
Protecting Your Financial Future
Refinancing a mortgage during divorce is often essential to achieving a clean financial break. At Stange Law Firm, PC, we help clients:
Navigate refinancing requirements
Protect their credit and financial standing
Structure divorce agreements that include enforceable refinance deadlines
Avoid unexpected liability tied to the former marital home
Our goal is to ensure that both ownership and debt responsibilities are properly aligned with the terms of your divorce settlement.
Multi-State Lawyers Assisting With Refinancing After Dissolution
If you are going through a divorce with property division, you can contact Stange Law Firm, PC online or at 855-805-0595.
