Thinking Of A Home Equity Line Of Credit? If Your Marriage Isn't Stable, Think Again

Posted on: 22 February 2016

If your marriage has been on difficult ground for a while, be wary of putting your signature on a home equity line of credit. If you do, you could find yourself financing your spouse's lifestyle or divorce attorney. Here's what you should know.

What is a home equity line of credit?

A home equity loan essentially allows you to tap into the equity that you have in your home. Since your equity increases both as you pay down any mortgage that you have and as your home appreciates in value over the years, the equity can be considerable. Home equity loans are frequently used to make needed repairs to homes, but they can also be tapped to fund a child's education or a family vacation (or anything else). 

Homeowners often take home equity loans as a line of credit–that means that the money can be drawn out as needed, instead of only as one lump sum.

Why is that a potential problem?

Simply put, there's nothing stopping your spouse from withdrawing the funds as he or she wants, without your permission. Once the original paperwork is signed and the line of equity secured, either spouse has access to it. While you may have an agreement with your spouse that the funds will only go for joint needs or strictly for home repairs, a disgruntled spouse can decide to bleed a home equity account dry. 

Since you agreed to the initial loan, you can be stuck paying back the loan. While marital debt is typically split between the divorcing spouses, the reality is that your name is on the paperwork and the divorce decree doesn't change your obligation to the creditor. In other words, just because your spouse is ordered to pay back part of the debt, doesn't mean that he or she will. If you value your credit rating more than your spouse does, you could end up on the hook for the whole thing.

In addition, the equity that's used is unavailable as an asset in the divorce. That could significantly reduce the amount that you receive as your share of the marital assets.

What can you do if you already have one?

If you've already taken out a home equity line of credit when you start to suspect that your marriage is less than solid, you need to take immediate steps to reduce your risk. You can contact your bank and cancel the loan (if funds have yet to be taken), or you can freeze the line of credit so that no more equity can be taken.

Keep in mind that if you freeze the line of credit available, the bank will likely notify your spouse. At the very least, your spouse will find out if he or she attempts to use the credit in the future. You also lose any ability to access the funds.

For more information, consider contacting a divorce attorney—like those at Hensley Law Team and other firms—to discuss your specific situation.