Requiring one Spouse to Refinance the Debt on the Marital Home

Many divorces involve resolving what to do with the real property owned by the couple.  Usually both parties are obligated for the payments toward the debt on the home (or other property), but only one of the spouses intends to keep the property.  In order to solve this problem, the courts and attorneys will often (but not always) use one of three methods:

  1. The spouse who will keep the home will refinance the mortgage in his/her own name in order to relieve the other party from their obligation.
  2. The property will be sold by some certain date, either by sale or auction.
  3. The order from the court or marital dissolution agreement will include a clause that requires the party keeping the property to make all the payments and hold the other party harmless for any obligation to make the payments.

Of these, the third is the least desirable.  Most mortgages are a long-term obligation and any number of situations can arise which will create problems between the parties if the spouse holding the property becomes unable to pay this debt.

The Tennessee Court of Appeals recently addressed this issue in two cases, Dobbs v. Dobbs and Mobley v. Mobley.  In each, the parties had been unable to come to an agreement on the terms of their divorce and it was left to the family law judge to determine how the divide the assets and debts.  In each case, the judge ordered that one party would keep a piece of real property, but rather than be required to refinance, the owning party would simply indemnify and hold the other party harmless on the debt.

In Dobbs (and the same language was quoted in Mobley), the court made the following observation:

Tenn. Code Ann. § 36-4-121(c)(4) requires the court to consider “the relative ability of each party for future acquisitions of capital assets” in its division and distribution of marital property. We are concerned that failing to make any provision for Husband’s release from the debt encumbering the marital residence may be contrary to § 36-4-121(c)(4). As a consequence, we remand the case for the court to determine a reasonable time for Wife to secure Husband’s release from indebtedness and to amend the final decree accordingly.

The court came to this conclusion because the husband was able to show that he had a modest income and the burden of the first and second mortgage on the home would “make it virtually impossible for him to obtain a mortgage in the future for any other home.”  Leaving the husband liable for the mortgage indefinitely just wasn’t a good solution.

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The agreements used to dissolve your marriage need to be carefully crafted as they will have effects on your life for many years in the future, and there are many issues to consider.  If you are going to be getting divorced or you have any other family law issues, contact me to find out how I can help you with your situation.