Option 1: One Spouse Keeps the Home
The most common approach is for one spouse to refinance the mortgage in their name only, paying the other spouse their share of equity. This requires the keeping spouse to qualify on their own income and credit. In California, a community property state, both spouses typically have equal ownership regardless of whose name is on the title. The refinance removes the departing spouse from both the mortgage and the title.
Option 2: Sell the Home
If neither spouse can afford the home independently or neither wants it, selling is the cleanest option. Proceeds (after paying off the mortgage and selling costs) are divided per the divorce agreement. In California's strong housing market, this often releases substantial equity that both parties can use for fresh starts.
Qualifying on One Income
The biggest challenge for the keeping spouse is qualifying for the mortgage on a single income. Strategies that help include counting alimony or child support as qualifying income (after receiving it for 6+ months with documentation of 3+ years remaining), using a bank statement or P&L program if you're self-employed, considering FHA's higher DTI limits (up to 50%), and exploring asset-depletion programs if you received a significant settlement. Save Financial specializes in helping recently divorced clients find the right program for their new financial picture.
Protecting Your Credit During Divorce
Until the mortgage is refinanced, both spouses remain responsible for payments. Late payments during divorce proceedings damage both credit scores. Continue making all payments on time, even if the divorce agreement assigns responsibility to one spouse. A divorce decree does not release either party from mortgage obligations — only refinancing does.
Community Property Implications
California is a community property state, meaning both spouses own the home equally regardless of whose income paid for it. This affects how equity is divided and how the buyout is structured. The interspousal transfer deed and refinance should be coordinated with your divorce attorney to ensure clean title transfer.