For forty years it was simple to get your spouse off your mortgage so you could keep the marital home after an Illinois divorce. The spouse that kept the marital house would refinance the mortgage. Some of the debt would have been paid off and mortgage rates were typically lower than they were when the mortgage was set or last refinanced. So, even if you had to pay your spouse their marital share of the equity in the home, the ongoing monthly payments post-refinance were usually lower.
Then came 2022! Mortgage rates are now climbing. A spouse cannot simply refinance the mortgage to a lower rate and pay out the equity in the home. The new monthly payment is simply too high.
For example, a $ 400,000 mortgage at 3.25% is $1740 a month. A $ 400,000 mortgage at 6.25% is $2,462.87 a month. A divorce spouse on a single income may simply not be able to pay the $720 a month to refinance the mortgage.
This new refinanced mortgage presumes there’s no additional equity in the house which your spouse needs to be compensated for…which is unlikely for any house bought before 2020.
Most ex-spouses who are willing to let their ex-spouse keep the marital home want their share of the house’s equity. This makes a higher-interest mortgage even more expensive.
In lieu of refinancing the mortgage for the marital home in an Illinois divorce, one spouse can can assume the mortgage.
Assuming A Mortgage During Or After An Illinois Divorce
To assume a mortgage is to “acqui[re ] real property coupled with the assumption of personal liability for debt secured by that property.” Black’s Law Dictionary (11th ed. 2019)
When one spouse assumes the mortgage they get the whole house…and the whole mortgage.
The other spouse’s name is removed from the deed to the house via a quitclaim deed and removed from the mortgage via a new contract with the lender.
Lenders are not thrilled about mortgage assumptions.
A mortgage assumption after a divorce is two working adults liable for one mortgage going to one working adult liable for one mortgage. Why would a lender want to allow that?
Some government subsidized mortgages through the FHA, VA or FDA require that loans be assumable.
Private lenders would prefer you refinance the mortgage at the new higher rates or pay off the loan if both parties are no longer willing to be jointly liable.
You are bound to the terms of the mortgage. The mortgage probably includes language saying that the mortgage is not assumable.
But, you are in the middle of a divorce. Contracts are made to be broken and renegotiated. Discuss with your lender what your options are for assuming the mortgage or doing something similar. The lender would probably not be thrilled with both of you walking away from the mortgage and selling at a loss in a high-interest environment.
Mortgage assumption is a new event in the Illinois divorce world. I became a lawyer in 2006. In 2008 we learned that lenders get really flexible very quickly if you were upfront about your situation. Lenders do not want a foreclosure and will present you with alternative options to ensure that they are paid and you stay in your house.
As my mother always said, “If you don’t ask, you don’t get.”
Forcing Your Spouse To Let You Assume A Mortgage In An Illinois Divorce
Even if you get the lender to agree to maybe allow you to assume the mortgage, that does not mean that your spouse will allow you to enjoy the low-rate mortgage rate without something in return.
During the divorce, a spouse can request that the court require the other spouse to cooperate with the assumption of the mortgage.
“Either party may petition or move for…other appropriate temporary relief including, in the discretion of the court, ordering the purchase or sale of assets and requiring that a party or parties borrow funds in the appropriate circumstances.” 750 ILCS 5/501(a)(3)
If there is equity in the house, the other spouse is going to want to get their share of that equity. However, neither spouse is entitled to a 50% share of the equity in a marital house after an Illinois divorce.
“The [Marriage and Dissolution of Marriage] Act does not require an equal division of marital property, but an equitable division” In re Marriage of Jones, 543 NE 2d 119 – Ill: Appellate Court, 1st Dist. 1989
Illinois divorce courts must merely “divide the marital property without regard to marital misconduct in just proportions” 750 ILCS 5/503(d)
Illinois divorce courts can order that an entire house be awarded to one spouse based on “the relevant economic circumstances of each spouse when the division of property is to become effective, including the desirability of awarding the family home, or the right to live therein for reasonable periods, to the spouse having the primary residence of the children” 750 ILCS 5/503(d)(5)
If awarding an entire house to one spouse is a windfall to that one spouse, an Illinois divorce court must also consider “the value of the property assigned to each spouse” 750 ILCS 5/503(d)(3)
This, typically, means that other marital assets will be awarded to the spouse who didn’t get awarded the house. For example, one spouse will get the house while the other spouse gets the retirement savings/401(k)s in the hopes that division will achieve an equitable distribution.
Alternatives To Mortgage Assumption In An Illinois Divorce
If you and your spouse have any kind of remaining relationship, you could arrive at an agreement which lets you maintain the mortgage interest rate…with your spouse still on the mortgage.
Your Marital Settlement Agreement could allow for both spouses to remain on the mortgage until rates drop sufficiently to allow for a proper refinancing of the mortgage.
This must be done by agreement. An Illinois divorce court will not order a reservation on an asset as big as a house without agreement by the parties.
“Illinois law encourages resolution of all issues ancillary to dissolution, as well as dissolution itself, in a single proceeding, for reasons of certainty, financial security and judicial economy.” In re Marriage of Kenik, 536 NE 2d 982 – Ill: Appellate Court, 1st Dist. 1989 (citations omitted)
At some future time, your spouse would then be removed from the mortgage and would be awarded their marital share of the equity in the home.
In the meantime, you would have to indemnify your spouse for the mortgage and any expenses associated with the property. A failure to pay the mortgage or any expense would not just result in a late notice, it would result in your spouse filing a petition for rule to show cause for indirect civil contempt of court accompanied by a motion to force the sale of the house.
Why would the spouse who didn’t keep the house agree to this? The other spouse’s credit will be tied up in your house. A spouse may agree to remain on a mortgage so that their kids had a place to live with their other parent…or because you sweetened the deal and let the spouse get equity that you are paying off until the mortgage is refinanced.
There is always a deal to be had. Remember, “if you don’t ask, you don’t get.”
What if rates never go down? Rates always go down. There is always a crisis. What happened in 2000, 2008, and 2020? The Federal Reserve bought up all the mortgages and other long-term securities until the rates went down and the economy got back on it’s feet. It has happened before and it will happen again. If you are struggling with figuring out how you can keep your house after your Illinois divorce, contact my Chicago, Illinois family law firm to discuss your issue with an experienced Illinois divorce attorney.