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Can I Get a Divorce When My House is Upside-Down?

If you’re fortunate, you’ll head into a divorce with equity in your home, money in the bank, and a couple retirement accounts. This way, once the marital assets are split according to Colorado law, you’ll be comfortable. But, not everyone is that fortunate.

For a lot of jaded spouses, there never seems to be a “good time” to divorce. And, if unhappy spouses delay their divorce because they’re waiting for the real estate market to heat up, they can find themselves waiting years. So, what many of them do is pull the trigger anyway and try to make the best decision regarding the marital residence, even if it is upside-down.

When There’s No Equity in a Home

When couples buy a home, they hope that it will appreciate in value and become a treasured asset. They expect that as the years go by, they’ll build equity in the home, but it doesn’t always work out that way. Home values can sharply rise because of a downtown revitalization, public transportation improvements, or even because a new school is built.

“Having negative equity is like walking on a treadmill with an injured knee. You don’t get anywhere, and it’s painful. If you’re lucky enough to be financially solvent, that puts you in the enviable position of being able to make the house payments, even though it feels like you’re throwing hard-earned money into an abyss,” Barbara Wheelan wrote in Bankrate.

Home values can also tank for a number of reasons, such as a recession, the economy, or because the neighborhood experiences a rise in crime. Fluctuations in the real estate market can have serious financial repercussions for homeowners, especially if they want to divorce and sell their home but they are upside-down on their mortgage.

What to Do With the Marital Residence

What is a couple to do if they wish to get a divorce when it’s a buyer’s market and they are upside-down in their mortgage? While a foreclosure or a short sale are options, we don’t recommend them because they can ruin your credit.

Next: Financial Advice for Divorcing Spouses 

With an upside-down mortgage, the divorcing couple usually has two options: 1) rent the house out until it can be sold for more than what’s owed on the mortgage, or 2) one of the spouses continues living in the home until it appreciates in value enough to sell at a profit. If the couple chooses the latter, the spouse who moves out must remember that with the mortgage on their credit, they may not be able to buy another home until the house is sold.

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