For years, one of the biggest questions in divorce was:
Who gets the house?
Today, I’m seeing a different problem emerge.
The question is no longer just who keeps the home.
The question is:
What happens when there isn’t enough equity for a clean exit?
As housing markets soften in some areas, more homeowners are finding themselves with little equity—or even negative equity. While this can create challenges for any homeowner, it becomes especially complicated when a couple is separating, divorcing, or ending a co-ownership arrangement.
The Housing Market Has Changed the Divorce Conversation
Historically, most separating homeowners had several potential paths forward:
- One party refinances and keeps the home.
- One party buys out the other.
- The home is sold and the proceeds are divided.
While these options were never simple or even desirable, they were often achievable.
Today, many homeowners are discovering that those traditional exit strategies may not work the way they once did.
The Rise of Low-Equity Homeownership
Over the last several years, many buyers entered the market using:
- FHA financing
- VA financing
- USDA financing
- Down payment assistance programs
- Low-down-payment conventional loans
These programs helped many families achieve homeownership who otherwise may have remained renters.
However, it also meant that many homeowners started with very little equity.
When home values rose rapidly, that wasn’t a significant concern.
When values flatten or decline, the conversation changes.
The Refinance Problem
One of the most common assumptions in divorce is that one spouse will simply refinance and remove the other spouse from the mortgage.
But refinancing requires more than a divorce decree.
The spouse keeping the home must qualify on their own, and the property must support the transaction.
If values have declined, there may not be enough equity to complete the refinance without bringing cash to closing. Sometimes a LOT of cash.
For many divorcing households already dealing with the financial strain of maintaining two households, that may not be realistic.
The Sale Problem
Many people assume that if refinancing doesn’t work, the solution is simple:
“Just sell the house.”
Unfortunately, that may not be a clean solution either.
If the property has limited equity, homeowners may discover that after paying real estate commissions, closing costs, and mortgage payoff amounts, there is little or nothing left to divide.
In some situations, homeowners may even need to bring money to closing in order to sell.
That creates an entirely different challenge.
When One Income Has to Carry the Home
Even if one party wants to keep the property, affordability becomes another hurdle.
The home may have originally been purchased using two incomes.
Now one person is expected to support the payment alone while simultaneously managing the financial realities that often accompany separation or divorce.
What worked for two incomes doesn’t always work for one.
The Growing Risk No One Wants to Discuss
Not every homeowner in this situation will face foreclosure or a short sale.
However, when refinancing isn’t feasible, selling creates little or no relief, and neither party can comfortably carry the home independently, the available options become increasingly limited.
For some homeowners, this may ultimately lead to difficult conversations about loss mitigation strategies, short sales, or other alternatives that weren’t part of the original plan.
These are conversations many homeowners never expected to have when they purchased their home.
Why Planning Matters More Than Ever
One of the biggest mistakes I see is waiting until after a settlement agreement is negotiated to determine whether the housing plan actually works.
By then, the parties may have already agreed to solutions that are difficult, or impossible, to implement.
Mortgage planning should be part of the conversation early.
Understanding the home’s value, available equity, refinancing options, assumption opportunities, and potential sale outcomes can help identify challenges before agreements are finalized.
Final Thoughts
The housing challenges facing divorcing homeowners today are different from what we experienced just a few years ago.
For some couples, the issue isn’t deciding who gets the house.
It’s figuring out whether there is a workable exit strategy at all.
When equity is limited, every option becomes more complicated.
That’s why understanding the mortgage implications before finalizing a settlement may be one of the most important financial decisions a homeowner makes during the divorce process.
Karla Kyte, CDLP®
Certified Divorce Lending Professional
My Divorce Mortgage Planning
This article is for educational purposes only and is not legal, tax, or financial advice. Individual circumstances vary and should be reviewed with qualified professionals.