Why are Mortgage Statements Useful in Divorce?

Many spouses in North Carolina are familiar with mortgages, and recent data shows that Americans owe just over $12 trillion in collective mortgage debt. While this might seem like a large number, one has to remember that a mortgage is generally seen as “good debt.” This is because a mortgage gives spouses access to real estate, which is one of the best investments a family can make. Although there is a certain amount of risk associated with real estate, it provides shelter, rental opportunities, and genuine utility compared to many other forms of investment.

Unfortunately, studies also show that less than half of Americans actually know what a mortgage is, suggesting that this may cause some confusion in the event of a divorce. A mortgage statement may help clear up some of this confusion during the property division process. But why are these documents so useful, and what do you need to know about them as you approach divorce in North Carolina?

Mortgage statements may include important dates. Perhaps most notably, the statement can help spouses determine when the real estate was acquired. This is crucial because the date of purchase may help determine whether the property is separate or marital. If the property was acquired prior to the marriage, then it is separate. This means it is not eligible for division according to North Carolina’s equitable distribution process. This also applies if the property was acquired after the date of separation, or if the property was inherited during the marriage. If the property was acquired through normal means during the marriage, however, then it is “marital property” and therefore eligible for division.

Many spouses may not be aware that both assets and liabilities (debts) are divided according to the equitable distribution process. A mortgage statement provides information about both of these factors. In terms of liabilities, the statement tells spouses how much money they still have to provide before the mortgage is completely paid. It also clearly communicates how much of the property is paid off, and this is considered an asset.

There are actually two different types of debt associated with mortgages. Spouses may owe interest on the mortgage, and this is essentially the fee that the lender charges for providing the loan. Spouses may also owe principal, which is the remaining amount owed after interest is taken into account. When spouses make lump-sum payments or extra payments, this money usually goes toward paying off the interest first and foremost.

A mortgage statement may also help resolve certain tax issues associated with property division – including the question of mortgage interest deductions. The IRS may allow spouses to deduct mortgage interest from taxable income, providing serious financial benefits in the process. Many spouses ask who gets access to this deduction in the event of a divorce. A mortgage statement can help answer this question in a number of ways.

First of all, the statement may clearly show who owns the home. If only one spouse owns the home, then only that spouse may claim the interest deduction after the divorce. If both spouses own the home and pay their mortgage from a joint account during the marriage, they may have the ability to divide the interest deduction equally. Spouses may need to closely examine mortgage statements to determine the most appropriate way to deal with this tax deduction.

The funds within a family home can easily become commingled. This means that both separate assets and marital assets have been used to pay off the mortgage. For example, a spouse might receive $100,000 in inheritance during the marriage (a separate asset) and use this money to pay down the mortgage on a $1 million home. The rest of the funds used to pay the mortgage may have been provided from a joint account during the marriage (marital assets). Mortgage statements can be very useful in this scenario as spouses strive to “unravel” the commingled funds.

If you have been searching for an experienced divorce attorney in North Carolina, look no further than Arnold & Smith, PLLC. Over the years, we have helped numerous divorcing spouses in the Tar Heel State, including those with real estate investments. We know that family homes, rental properties, and other forms of real estate may provide excellent financial security to spouses in their post-divorce lives. With our help, you can pursue your fair share of these assets during the property division process. We have considerable experience with complex asset division, high-net-worth divorces, and collaborative law. Book your consultation today to get started with an effective action plan.