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How divorce can affect HELOC loans

On Behalf of | Dec 6, 2022 | Divorce

A home equity line of credit (HELOC) provides a way for people with equity available in the property to borrow money against the house. Married couples could use a HELOC loan for many purposes, with the understanding that they must pay the loan back. If the spouses file for divorce in California with a HELOC loan outstanding, the parties must work to settle the debt.

HELOC loans and divorce

HELOC loans come with different rules than an unsecured line of credit would. Primarily, since a house is the joint property of the spouses, the spouses would be equally responsible for paying the loan. Such might be the case even when only one spouse’s name is on the house but when the law considers it joint property.

During an amicable divorce, the parties might agree to sell the house and split the HELOC payoff equally. Of course, it could be possible for one spouse to agree to pay the entire amount. Or, one spouse could take a new loan with a lower interest rate to pay their share.

Debt and divorce

A debt situation factors heavily into many California divorce proceedings. Not all divorces are agreeable, and problems may arise when negotiating who pays what debts. When the parties cannot agree to a conclusion, a mediator might help. Mediation is not binding, but it could lead to a result that would be less costly than going to trial.

Performing a thorough review of all jointly and singularly held debt may be a top priority for those filing for divorce. One spouse might not know that tax debt exists, for example. Take that as a reason why to perform a financial debt audit.