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Divorce and mortgages: Practical solutions

You can't divorce your mortgage when you divorce your spouse -- although you might wish it were that simple.

A house is, for many people, the single biggest asset they have -- but if you're young and just starting out, you may have more debt than you do equity in your house. That means that you and your spouse have to decide how to handle the potential liability involved. What are your options?

1. You agree to sell.

If neither you nor your spouse want -- or can afford -- the house you're living in, selling it might be the best option. However, it can take a while for a house to sell, especially if you don't have a lot of wiggle room to come down in price because there's barely enough equity to pay off both the mortgage and the realtor. Since you're both liable for the entire mortgage if the other doesn't pay, you may want to work out a living arrangement that allows you both to stay in the home until it sells. That can reduce expenses and make the situation easier to handle.

2. One of you refinances.

If one of you is in the position to afford the house alone, you can refinance the home and split any remaining equity with your spouse (if there is any). This may be the best option if you and your divorcing spouse have vastly different incomes. Whoever is in the position to afford the home is taking on a significant financial burden for the time being, but also gets the relief of knowing that his or her credit score is safe.

3. Take a risk.

One of you can stay in the home and just continue making the mortgage payments as scheduled. Obviously, this is the riskiest option if you're the one leaving the house behind, because your credit can take a serious hit if your ex-spouse fails to pay. If this is the only viable option, make certain your divorce decree gives you the option to put the house up for sale if your ex-spouse misses a payment and check on the mortgage monthly. Also, specify a time limit on how long the situation can continue without selling or refinancing so that you aren't legally tied to the burden for another 20 or 30 years.

An attorney can provide more advice on handling property division during a divorce.