Home Equity Line of Credit during the Divorce Process

[blooski]

What is the name of your state (only U.S. law)? Florida

Hello,

I and my spouse are in the process of getting divorced. We have not yet filed our case in the courts. I am hoping to do this next month. In the meanwhile my wife wanted get some education and we decided the best way to do this is by getting a Home Equity Line of Credit (HELOC). Here are the details about HELOC:
It is for $30,000
I am the one who applied for the loan because my wife is not working currently.
She is on the title, so she had to sign the application.

Now she wants all the $30,000 and tells me that she will pay the monthly installments.
Here are my questions:
Is there a risk for me in doing this?
At the time of divorce, will I be held responsible for the loan? We are planning to sell the house and pay off the HELOC using the equity.
Should I draw an agreement that says that my wife is responsible to pay off the loan and make her sign that agreement?

Any suggestions are appreciated

 

[Golfball]

Since you are on the note (and apparently only you), it is you that is ultimately responsible for making the payments, whether or not your STBX makes them. You can have in any separation or divorce paperwork that your STBX is responsible for them (and this could be enforced with breach of contract or contempt, depending on the wording, and how things are done in your state), but your mortgage company will stomp on your credit, and only your credit, if the payments are missed, because they are not a party to your divorce. So yes, there is a *BIG* risk. (They will not necessarily stomp on your wife's credit, because she's not on the note!)

While I'm not an attorney, encumbering the marital home with extra debt/liens during a divorce process for expenses that are to the benefit of only one party strikes me as a bad idea, especially if you are trying to sell the place.

It'd be one thing if you tapped a HELOC to pay for necessary repairs to sell the house, especially given the market. (Fix damage, replace carpet, repaint, etc.) It's another kettle of fish, and IMNSHO, a stinky one to boot, to use it to make an unsecured loan to one of the parties.

 

[LdiJ]

What is the name of your state (only U.S. law)? Florida

Hello,

I and my spouse are in the process of getting divorced. We have not yet filed our case in the courts. I am hoping to do this next month. In the meanwhile my wife wanted get some education and we decided the best way to do this is by getting a Home Equity Line of Credit (HELOC). Here are the details about HELOC:
It is for $30,000
I am the one who applied for the loan because my wife is not working currently.
She is on the title, so she had to sign the application.

Now she wants all the $30,000 and tells me that she will pay the monthly installments.
Here are my questions:
Is there a risk for me in doing this?
At the time of divorce, will I be held responsible for the loan? We are planning to sell the house and pay off the HELOC using the equity.
Should I draw an agreement that says that my wife is responsible to pay off the loan and make her sign that agreement?

Any suggestions are appreciated

I slightly disagree with the other response. She is on the loan as well if she signed the application. You have also apparently already taken out the loan so that is kind of a moot point.

If the purpose of the loan was for her to get some education, then you could allow her to have the entire amount of the loan. The loan will get paid off when you sell the home...there is no way around that, so there is no real risk to your credit. You then take that into consideration when diving other marital property or any remaining equity in the home...in other words, she gets 15k less than she would normally get, because she got the whole 30k loan, and marital property paid it off.

 

[Golfball]

I slightly disagree with the other response. She is on the loan as well if she signed the application. You have also apparently already taken out the loan so that is kind of a moot point.

If the purpose of the loan was for her to get some education, then you could allow her to have the entire amount of the loan. The loan will get paid off when you sell the home...there is no way around that, so there is no real risk to your credit. You then take that into consideration when diving other marital property or any remaining equity in the home...in other words, she gets 15k less than she would normally get, because she got the whole 30k loan, and marital property paid it off.

I'd hesitate before assuming wife is on the loan / liable for the loan w/o having reviewing the actual paperwork. (OP: "I am the one who applied for the loan because my wife is not working currently.")

One can agree to a loan against (marital) property where a marital interest exists w/o personally being liable for that loan.

I am in this situation (except lacking the divorce part. Wife & I are celebrating our first anniversary on Friday). My wife took out a HELOC for improvements on the marital dwelling. For various and sundry reasons, my credit profile was not part of the loan application. I did have to sign paperwork acknowledging the whole thing, since I do have a marital interest in the property, even though I am not on the deed. (Wife bought the house before we married.) Thus, my signature was part of the loan package/application, but I was not an actual applicant for the loan, nor am I personally liable for the loan. (i.e. if the house were to go into foreclosure, my credit would not take a hit.)

 

[LdiJ]

I'd hesitate before assuming wife is on the loan / liable for the loan w/o having reviewing the actual paperwork. (OP: "I am the one who applied for the loan because my wife is not working currently.")

One can agree to a loan against (marital) property where a marital interest exists w/o personally being liable for that loan.

I am in this situation (except lacking the divorce part. Wife & I are celebrating our first anniversary on Friday). My wife took out a HELOC for improvements on the marital dwelling. For various and sundry reasons, my credit profile was not part of the loan application. I did have to sign paperwork acknowledging the whole thing, since I do have a marital interest in the property, even though I am not on the deed. (Wife bought the house before we married.) Thus, my signature was part of the loan package/application, but I was not an actual applicant for the loan, nor am I personally liable for the loan. (i.e. if the house were to go into foreclosure, my credit would not take a hit.)

Its possible that OP's situation could be similar to yours. However, it honestly is more likely that she is also on the loan...but that the credit is based on HIS credit...because she couldn't take out the loan by herself, because she isn't working.

 

[nextwife]

As one who works for a lender, I would strongly advise against mmaking any additional draws on your HELOC at this point in the divorce process. Freezing the line and not incurring any additonal debt is a better idea. She can pay for her post divorce education using whatever the divorce decree states she should use. Including her share of any marital assets, if that is what is determined to be equitable. Did she assist in paying for YOUR education? If not, then why should you pay for HER education?

It is really wiser to make no draws against the line until the divorce decree determines how she should pay for her post divorce career/education pursuits. Incurring additional debt now is not smart. Having a line is not the same as using it.

 

[Ohiogal]

I'd hesitate before assuming wife is on the loan / liable for the loan w/o having reviewing the actual paperwork. (OP: "I am the one who applied for the loan because my wife is not working currently.")

One can agree to a loan against (marital) property where a marital interest exists w/o personally being liable for that loan.

I am in this situation (except lacking the divorce part. Wife & I are celebrating our first anniversary on Friday). My wife took out a HELOC for improvements on the marital dwelling. For various and sundry reasons, my credit profile was not part of the loan application. I did have to sign paperwork acknowledging the whole thing, since I do have a marital interest in the property, even though I am not on the deed. (Wife bought the house before we married.) Thus, my signature was part of the loan package/application, but I was not an actual applicant for the loan, nor am I personally liable for the loan. (i.e. if the house were to go into foreclosure, my credit would not take a hit.)

Agreed. And congrats on the anniversary!