Handling home loans during divorce

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While taking home loans, do not focus on the financial nuances alone. Think how the same would need to be tackled in case of an unforeseen divorce.

Whenever we hear the word ‘divorce’, the feelings that follow are of angst, pain and irrefutable suffering. Add to them the grief of being deserted and struck out of a relationship that you had relied upon can have an inexplicable emotional bearing on the mind. Divorce factsheets shared by India’s Census highlight an increase in the number of divorce cases every year. Couples headed to courts for divorce have a lot of things to settle before the unavoidable separation. Whatever may the reason for divorce be, the stress related to the division of property or payment of home loans can exacerbate the strain that separated couples experience.

Settling joint home loans

There are myriad ways in which couples may handle home loans sought before separation. The first factor that must be checked is if both the husband and wife are co-owners of the property or are merely co-applicants. If the wife is a co-applicant in the joint home loan taken for property purchase, she is automatically deemed a co-owner of the property. In such a scenario, the following solutions are possible.

Sale of property: If the couple is unable to reach a consensus regarding the division of the loan, the best way out is to sell the property and divide the sale proceeds in proportion to loan contributions. This is a simple and convenient method that people follow to escape the hassles surrounding contesting the property along with divorce.

Loan and title transfer: Another way out is that one of the partners can decide to get the loan transferred in his/her name and then assume responsibility for repaying the loan. Besides, he/she can pay back the amount contributed by the other partner before seeking a title transfer. However, divorcing couples deciding on loan and title transfer must not ignore payment details regarding stamp duty and registration cost.

Loan settlement: If one partner suddenly stops paying EMIs towards home loan repayment, the law mandates the other partner to repay the loan and fill in the gaps due to sudden EMI stoppage. With no amicable solution in sight to shoulder the joint responsibility, one of the partners can get the loan refinanced and seek property title transferred to his/her name in full. This, however, requisites him/her to settle the other partner’s share, i.e., repay the amount the other partner has paid for buying the property to date.

Dealing with single loans

Some home loans may also be single, which means that only one of the partners is the sole applicant to the home loan taken. If the loan applicant is also the sole owner of the property, then there is not much fuss as the property belongs to him/her only. The sole responsibility of repaying the loan then lies with the partner who has taken it.

In certain scenarios, one partner applies for a home loan while the property is bought in the other partner’s name. This means that the partner entitled to the property is not liable to repay the home loan. While the situation stemming out of this understanding can be complex, there are simple ways to resolve the same.

Though one of the partners enjoys legal ownership, the other partner can prove that he/she has been repaying the loan to date and can claim a stake in it.

The non-applicant partner enjoying title to the property can seek loan transfer in his/her name, but only after settling the amount paid by the loan applicant. This will allay all disputes regarding ownership of the property.

The aftermath

Personal finance decisions like taking home loans and sharing the responsibility to repay the loans are never simple. The stark reality of divorce is that the effect of separation is palpable on such decisions. The problem is worsened as relationships are soured and both the partners may be either ignorant about the terms of the loan or may harbour different thoughts regarding the same. Legal separation means reworking one’s personal finance goals instead of financial plans aimed at as a couple. The idea is to verify the status of the loans and other debts taken and decide on resolving them accordingly.

(The writer is CEO and co-founder, BASIC Home Loan. Views expressed are personal)