Could a “Divorce Mortgage” Become an Option in Chicago?
When couples of any age file for divorce in Chicago or the surrounding suburbs, one of the biggest issues when it comes to property division is the family home. In particular, couples who have smaller children who want to stay at the house or older couples who have spent their entire lives at the property may not want to sell. While financial experts tend to agree that selling the family’s real property and dividing the profit tends to be the best economic course of action, many divorcing spouses feel a sentimental connection to the home and do not want to sell.
But in situations where keeping the house simply does not make sense financially, is there another way? According to a recent article in Forbes Magazine, banks in Great Britain plan to begin offering divorcing spouses a “divorce mortgage.” Would such a loan help divorcing spouses in Chicago?
Losing Economically When You Keep Your House
Generally speaking, getting the family home in a divorce settlement typically means that you will not be awarded other assets in the divorce that could help you to pay your bills and for the upkeep of your property. Why would that happen? Illinois is an equitable division state, which means that, during property division under the Illinois Marriage and Dissolution of Marriage Act (IMDMA), a judge will divide a couple’s debts and assets in a manner that is equitable or fair. In other words, property need not (although in some cases it may) be divided equally. Yet that does not mean that one spouse can keep the house while also being awarded cash assets, for example.
All of a divorcing couple’s assets will get an estimated value, and they will be distributed equitably along with a couple’s debts. So, if the house is valued at $500,000 and the judge has decided that an equitable distribution will involve Spouse A being awarded approximately $550,000 in assets, then only an additional $50,000—outside of the house—will go to Spouse A if that spouse insists upon keeping the home. As you might imagine, getting only an additional $50,000 in assets could make it difficult for Spouse A to pay bills, taxes, and other upkeep associated with the real property.
For younger couples, this might be less of a problem as there is often time to continue earning. However, for older couples who are thinking about a “gray divorce,” keeping the couple’s family home can result in serious financial distress. This is where the “divorce mortgage” could come into play.
What is a “Divorce Mortgage”?
As the article explains, a “divorce mortgage” would work like this: a spouse who wants to keep the home as part of the divorce settlement would apply for a loan from the bank to buy out the other spouse. This way, when it comes to property division, the court essentially would look at the couple’s assets as if the home had been sold since Spouse A (who wants to keep the house) would be buying out Spouse B’s interest in its market value. In addition to lending Spouse A the money to do this, a bank providing a “divorce mortgage” would also “lend the person staying put extra money that would go into a savings account and be used to pay the loan interest over a period of set time.”
For an older adult thinking about divorce who wants to stay in her home, this kind of loan could help. Indeed, as the article highlights, in divorces involving adults aged 50 and older, about 50 percent involve a spouse who keeps the family home.
Contact a Chicago Divorce Attorney