If you have decided to keep the house and refinance the mortgage, the question then becomes how much, if anything, will you have to borrow? You might consider the following options.

Asset Swap – Some couples have sufficient assets, making additional borrowing unnecessary. A classic example would be when the wife keeps the house and the husband keeps his business. Refinancing is still necessary in most cases, as the departing spouse will not agree to leave his or her name on the mortgage.

Refinance Buy-Out – More commonly, the remaining spouse obtains a new loan sufficient to pay off the departing spouse. Consider the following:

        Example: Sally and Tom own a house valued at $300,000, subject to a mortgage with an outstanding balance of $200,000. Therefore, the equity in the house is $100,000. If Sally and Tom split their assets 50-50, then each has a $50,000 share, or $50,000 of equity.

If Sally remains in the house and doesn’t have significant savings, she will have to borrow $250,000. Here’s why: she will need to borrow $200,000 to refinance the existing $200,000 loan balance, plus an additional $50,000 for Tom, or a total of $250,000.

Sally will need sufficient income to service the new $250,000 mortgage. The good news is that lenders take alimony and child support into account.

        Tools: Mortgage loan calculator: http://www1.divorcenet.com/mc/calculator.php

Seller Financing – In the previous example, assume Tom was in no hurry to receive his $50,000 and agreed to remain on the mortgage. Tom would take back a second mortgage for $50,000, which Sally would have to pay off over time, perhaps with a final payment due around the same time the youngest child graduates from high school.

        Divorce Tip: These situations may create unanticipated problems, such as who pays for the new roof? How do you define maintenance and repairs vs. capital expenses? Is there a formula built into the final sharing of proceeds that reflects all contingencies? Seek the advice of counsel and make sure you have a working relationship with your soon-to-be “ex.”