"On Paper" Divorce for Financial Reasons
Posted on November 12, 2007 by Her and tagged housing, relationship
photo: How I Met Your Mother website
Last week on How I Met Your Mother, Lily and Marshall considered getting a divorce "on paper" for financial reasons. Lily had bad credit, so she proposed that Marshall divorce her so he could apply for a mortgage without her. The odd thing about this scenario is that I know a couple who actually did this - and it ended in a real, bitter (and permanent) divorce.
This couple, who were close friends of my parents, started several hotel businesses. Over time one business after another collapsed, leaving them personally in financial ruin. They were facing bankruptcy, a difficult time for any married couple with two small children. They were going to lose their home and have to uproot their children. Wanting to protect his wife and children, the husband proposed that they get a divorce before he filed for bankruptcy, allowing his wife and children to retain their home. It was supposed to be "on paper" and he would still live with them. After the dust settled, he planned to remarry his wife. But his wife was so hurt by the idea that they started fighting over it - in addition to their fights about finances. Within a year, they were divorced for real. They ended up losing it all: the businesses, the house, and the marriage.
Aside from the obvious legal and ethical issues (what the husband wanted to do was obviously fraud), this was a terrible idea for their relationship. It may be tempting to try using divorce to cure your financial issues, but chances are you will only add pain to the disaster. It's better to take advantage of credit counseling and other debt services than to try to defraud your creditors and spouse.
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Theresa | Nov 12, 2007
It actually depends on the state where you are going to purchase. Christina you have legal rites to your home because you are married to your husband and are probably not in a community property state. In Minnesota (where we live) my husband alone could apply for a mortgage and we could ignore my income and credit. This is generally-obviously some first time homebuyer programs with income limits this wouldn't work. However, if we lived 50 miles east in Wisconsin which is a community property state no-go. My credit would be considered for qualifiying regardless of income.
I think divorce for better rate on your mortgage would be a terrible idea. Fix the credit and rent for a few more months. 1- Divorce isn't cheap and just think about the paperwork. ugh.
Christiana, you may end up paying half the mortgage and getting nothing out if it if things turn south or your husband passes away. I'd make sure you guys have something like Joint tenancy set up so you can take over the loan and keep the house without going to probate. Sounds like you've done that being a legal resident, but I'd cover all your bases. Otherwise, you may be yourself up to get the short end of the stick financially in a lot of different scenarios.
Sure, you guys got the house now, but will you be able to fully share in your equity stake in the home without your name on the mortgage or deed?
I'm not an uber-feminist, not by a long shot, but I think women need to understand how to protect themselves from uncertain futures, whether it's divorce or premature death. Love is blind, but it sure doesn't pay the rent or mortgage. I'd review what you are doing to make sure that it makes the most sense going forward now that the house has been secured in your husband's name. But that's just me and my condo that isn't community property.
Very interesting scenario. I wonder how many people did something like that?
Him: I love the show when I can watch it.
anon | Nov 12, 2007
I don't see why it's "fraud," particularly why it is "obviously" fraud. Unmarried people living together get mortgages all the time, in one person's name or in both, and then live in those houses. Same-sex couples always do.
The problem is that the plot made no sense because Marshall could have just applied for the mortgage in his name, at least in my state.
Agree with anon. It doesn't seem to be fraud; divorce would dissolve the marriage and they'd also lose any legal or financial benefits of marriage.
I've heard of people who do this to help their kids get financial aid in college. I think it's more common, because you can't apply for government aid using only one parent's income if they're married and have two incomes.
My wife and I share everything within our marriage. I can't imagine operating any other way but we know plenty of people who do. We've talked to friends that are shocked we have all our vehicles in both names, all our properties in both names, and yes, all financial accounts in both names.
I've heard and read about all manner of arrangements between married people in this day and age. Some of it is understandable since we have some insane family courts who are doing all sorts of things that would be seen as evil and totalitarian if they weren't "for the children." However I've seen it plenty from people who have only married once, have childre exclusively with each other and have no other apparent rationales for keeping finances apart.
Christiana | Nov 12, 2007
Odd, since when my husband and I bought our house last year, we simply had him apply soley for the mortgage (using his income only for the approval) and had no trouble. I'm on the mortgage since i am a legal resident of the home, but it was applied for only in his name (my income is smaller and I have some bad debt related to the time pre-marriage.) It was a legal manuever and our broker was the one who suggested it based on his credit score and income. Maybe this is only allowable in certain states?
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