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Underwater mortgages and asset division questions during divorce

Since the economic downturn in 2007, we have increasingly seen a number of divorcing couples trying to get out from under an underwater mortgage. When more money is owed on the home than the property is worth, deciding what to do regarding this debt becomes a major factor in property division questions. Often couples choose to simply sell the home when there is no equity to split - leaving both spouses with nothing.

Even under such circumstances, a property appraisal may still be required to accurately determine the property value. Such a determination helps couples better decide what options are available. If the property debt is not severe, one spouse may wish to hold onto the property, refinance it in his or her own name, and factor these details into any divorce property division agreement. As we have seen in the past few years, property values have recovered sometimes making it logical to hold onto the property to sell at a later date. In any event, the profits or losses would fall on the spouse wishing to personally hold onto the property.

When one spouse takes on refinanced debt, a number of legal options require consideration. It may mean rewarding this spouse with additional assets to make up for taking on this debt. Or the other spouse may have to take on other debt to make for a more equitable split of the assets and debts. Finally, any agreement property settlement agreement would need to take into account what to do with proceeds in the sale of the home.

It's generally best for couples to seek the assistance of able family law attorneys who routinely handle divorce and asset division questions. Especially in New York, these questions are complex and determinations often dependent upon little known state laws.

Source:, "Divorcing With a Home With No Equity," Beverly Bird, accessed Nov. 6, 2015

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