The Colorado Divorce Guide to Mortgages and Avoiding Costly Mistakes: Keeping, Selling, or Refinancing Your Marital Home

Dividing a home in a Colorado divorce isn’t just about agreeing on numbers—it’s about turning those numbers into a workable, enforceable, and fundable plan. The mortgage, title, equity, and timing of transactions all have to fit together. If they don’t, even the most carefully negotiated property settlement can fall apart.

This guide walks through the most common issues in divorce-related mortgage financing, requirements for assuming, refinancing, or buying a home, and the impact of support and maintenance on lending.

1. Top 5 Issues with Home Loans & Divorce

From a legal perspective, the marital home is just another asset. From a lending perspective, it’s a highly regulated, compliance-driven transaction that must pass underwriting. Here are the five most common trouble spots:

1. Settlement language that doesn’t meet lender guidelines
   Lenders aren’t bound by what’s “fair” in a decree—they must follow investor and agency rules. If your settlement doesn’t address occupancy, deadlines, and payment structures in a lender-approved way, financing options can be lost.
2. Support income that doesn’t qualify
   Court-ordered maintenance or child support doesn’t automatically count toward qualification. Lenders require minimum duration, history, and documentation (see Section 3).
3. Missed refinance or assumption deadlines
   Even if a decree allows 6–12 months, interest rates, credit scores, or market conditions can change—making refinancing impossible later.
4. Debt-to-income ratio problems
   Post-divorce, debt is often reallocated. The spouse keeping the home may take on credit card or auto loan obligations that push debt ratios too high without restructuring the settlement.
5. Title and lien problems
   Old HELOCs, judgment liens, or unreleased deeds of trust can block closing. These need to be identified and cleared early.

2. What’s Required to Assume a Loan, Refinance, or Buy a Home

Assuming a Loan

• Not all loans are assumable. FHA, VA, and USDA loans sometimes are; conventional loans rarely are.
• Even if assumable, you must qualify on your own income and credit, with a full application, credit check, and documentation.

Refinancing the Mortgage

• Most common when one spouse keeps the home.
• Must meet current underwriting guidelines for income, credit, and debt ratios.
• For equity buyouts, the refinance must release the other spouse from both title and loan obligations.

Buying a New Home Post-Divorce

• Most lenders require the divorce to be finalized with a documented property division.
• Support income must have a qualifying history and at least 36 months of continuance.
• Debt allocation in the settlement should leave room in your ratios for the new purchase.

3. Support & Maintenance: Lender Qualification Rules

Support income (maintenance or child support) can make or break a mortgage application. Lenders apply three tests:

• Continuance Test – Must continue for at least 36 months after closing.
• History Requirement – Typically 3–6 months of documented receipt.
• Documentation – Signed decree, modifications, and proof of payment (bank statements, deposit slips, payment platform record

4. Equalizing the Estate: The Home as a Settlement Tool

The marital home often represents the largest single asset in a Colorado divorce. Equity can be used to equalize the estate:

• Buyout via refinance – One spouse refinances and pays the other’s share.
• Sale and division of proceeds – Home is sold, debts paid, and net proceeds divided.
• Offsetting other assets – One spouse keeps the home, the other keeps a proportionate share of investments or retirement accounts.

Tip: Equalization payments should have clear deadlines and default remedies in the decree.

5. Implementing Agreements & Orders

Execution is where most post-decree disputes arise. Key steps:

• Record quitclaim or special warranty deeds promptly.
• Remove the departing spouse from the mortgage via refinance or assumption.
• Clear liens or encumbrances before sale or refinance.
• Update insurance to reflect the correct owner and insured.

6. Attorneys Post-Decree: Why You Might Need Them Again

Post-decree issues are common:

• Enforcing refinance or sale deadlines.
• Contempt actions for failure to remove a name from the mortgage.
• Modifying terms if income changes affect payments.

Proactive, lender-compliant settlement language helps avoid these issues.

7. Common Pitfalls to Avoid

• Unrealistic deadlines for refinance or sale.
• Relying on verbal promises—unenforceable unless in the decree.
• Overlooking tax consequences.
• Counting unverified support income for qualification.
• Not clearing title issues early.

Final Thought

In Colorado divorces, the marital home and mortgage are often the most complex financial pieces of the puzzle. If the settlement isn’t lender-compliant, you could end up back in court—or worse, unable to execute the agreement you worked hard to reach.

A collaborative approach between your attorney and financial advisor ensures your property division is not only fair but also financially executable. Start the conversation early to avoid costly mistakes.

To schedule a divorce case review in Colorado Springs or throughout Colorado, contact Clawson & Clawson, LLP.

Matthew Clawson | Colorado Divorce Attorney

Email: matthew@clawson.law