Settling property division with underwater mortgage

Divorce can lead to many family law issues. One thing that Orange County, California, divorcing couples should be concerned about is property division. While many people look at the division of marital properties as a mere division of assets, there are several things that should be considered. First, if the property in question is still tied to any obligations like a mortgage.

For example, the marital home is a part of the common properties of a divorcing couple. Any equity derived from the home is added to the total value of the property. After divorcing, the couple may decide if they wish to sell the house and divide the money or if one of the parties will retain the house and pay off half the house’s price to the other ex-spouse. However, properties tied to an underwater mortgage are different because they have negative equity — the asset’s value is less than its mortgaged value. That part of the equation makes the division of assets more challenging.

There are several ways to resolve the issues that may arise in dividing marital properties that have underwater mortgages. The spouse who will get the mortgaged property can receive a credit from the other spouse to balance the deficit. Another option is to zero out, or to not consider the negative equity of the property and consider the property’s worth in its present value. Lastly, if it cannot be resolved, the divorcing couple may wish to consider selling the house at a loss, or a short sale.

Going through divorce and settling post-divorce concerns can be complicated. Adding property division to the equation can cause stress and dispute between the ex-spouses. Here in California, which is a community property state, marital properties may need special consideration among other family law concerns. To settle this issue, people should inform themselves about their legal rights.

Source: GoBankingRates.com, “Handling an Underwater Mortgage When You’re Getting a Divorce,” Casey Bond, July 6, 2013