What Happens If We’re Underwater On Our Mortgage When Divorcing In Massachusetts?

Navigating the complexities of divorce is challenging, and it becomes even more intricate when dealing with an underwater mortgage. We recognize the distress this can bring, and the goal of this post is to simplify the process, answer some pressing questions, and guide you through this sensitive financial situation.

In essence, an underwater mortgage means that you owe more on your home loan than the current market value of the house. In other words, if you were to sell the house right now, the sale wouldn’t cover the remaining balance of the mortgage. Especially in places like Massachusetts, where housing prices can fluctuate, understanding the implications of an underwater mortgage during divorce is essential.


How Massachusetts Handles Underwater Mortgages in Divorce

Massachusetts operates on an “equitable distribution” system. While many might confuse this with “equal distribution,” the two aren’t the same. Equitable means “fair,” and what’s fair might not always be equal. When it comes to dividing assets and debts, the courts will consider various factors. For underwater mortgages, here’s what you need to know:

  1. Equity Division: If a home is underwater, it essentially has negative equity. The decision on how to divide this negative equity or the associated debt of the home can vary. Options might include one spouse taking on the debt in exchange for other considerations, selling the house and splitting the debt, or continuing to jointly own the property until the market improves.
  2. Sell or Stay: Couples can decide to sell the home, settle the mortgage, and then divide any remaining debt. Alternatively, if one spouse wishes to keep the house, they may need to refinance the mortgage solely under their name. This requires considering one’s ability to manage mortgage payments, property taxes, and upkeep costs.
  3. Consideration of Other Assets and Debts: The underwater mortgage will be considered alongside other marital assets and debts. This holistic approach ensures that the overall asset and debt division remains as equitable as possible.


Practical Tips for Couples with an Underwater Mortgage

  1. Open Communication: Understand each other’s priorities. Would one of you prefer to keep the home, or is selling a more agreeable option?
  2. Professional Appraisal: Before making decisions, get a professional appraisal to know precisely where you stand with the home’s value versus what’s owed.
  3. Consult Financial Experts: Consider working with financial planners or mortgage specialists familiar with Massachusetts laws. They can offer advice tailored to your situation.
  4. Explore Refinancing: If one party wishes to retain the home, look into refinancing options. This can sometimes make the mortgage more manageable.


Considering the Emotional and Financial Impact

When dealing with an underwater mortgage, it’s crucial to separate emotional attachments from financial realities. A home often represents more than just a structure; it’s a repository of memories, dreams, and milestones.

  1. Emotional Toll: Holding onto a home because of sentimental reasons might not always be financially prudent. Especially in a divorce situation, the house may serve as a constant reminder of past events, making it harder for both parties to move forward. Weigh the emotional cost of keeping versus selling.
  2. Future Financial Implications: The housing market is ever-evolving. If you’re in an underwater mortgage now, there’s no definitive timeline for when the property might appreciate. If one partner decides to retain the home, it’s essential to understand that they might be holding onto the property for years before breaking even. Additionally, while refinancing might seem attractive, it also comes with its own costs. There might be fees involved, and a longer mortgage duration can translate to more interest paid over the loan’s life.
  3. Impact on Children: If children are involved, their well-being should be a top priority. While stability is important, being burdened with a financially draining property might not be in the best interest of the family. It could lead to unnecessary financial strain, which might indirectly affect the children’s quality of life. Sometimes, a fresh start in a new, more affordable home can be beneficial for everyone.


Facing an Underwater Mortgage? We’re Here to Help

The stress of an underwater mortgage during a divorce can feel overwhelming, but remember, you’re not alone. Knowledge is power, and understanding your options can bring clarity to a situation filled with uncertainty. Let the knowledgeable team at Reade Law Firm, PC, empower you to find your best way forward during and after the divorce. We help you achieve the objectives that mean the most to you while preserving your peace of mind. Contact us online or call us at (978) 767-8383. We’re happy to help.