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Keeping the homestead in Illinois? Remember the mortgage

A divorce settlement is a contract between two spouses and is legally enforceable. A very large portion of the divorce settlement is how certain marital assets and liabilities are to be divided during the divorce or handled after.

Although a divorce settlement is enforceable in Illinois, it doesn't automatically alter contracts with third-parties. For instance, a divorce settlement may include a term about how the mortgage is to be handled should a couples choose to keep the home instead of selling it. What it doesn't do is change the terms of the mortgage with the lender.

Dealing with the home can be as creative a solution as couples want. One couple may choose to give residence rights to one spouse as well as the mortgage obligation. In other instances, it may be a time-sharing plan with a split financial responsibility. In even other instances, exchanges are made that allow one spouse to remain in the home while the other pays the mortgage. 

No matter what arrangement is decided upon, it doesn't matter in the eyes of the lender. So if one party fails to pay the mortgage, the other remains legally responsible and subject to the consequences of default. 

Is there a way to protect against this possibility? Of course there is. In fact, there are several options. For example, refinancing can successfully remove one spouse from the mortgage.

Where refinancing isn't an option, a quitclaim deed or interspousal transfer grant deed is another route. Even yet another is assumption of the mortgage. 

While there are other options, each has its own consequences, which is why it is important to discuss each possibility with a divorce attorney before making a decision.

Source: Loan Safe, "Mortgage Options While Going Through a Divorce," Evan Bedard, July 14, 2013

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