[California] Wife and I are both named on a mortgage that originated prior to our marriage. If I refinance the mortgage in only my name because she's out of the country (physically separated), could that mortgage lose community property status if she decides to divorce me while living abroad?
Before we were married, my spouse and I purchased a home in a community property state (California) as tenants-in-common, with both of our names on the mortgage (so we each owned 50% of the property and 50% of the debt before we married).
We would now like to refinance our home, but my spouse is out of the country. The lender informed me that the only way to refinance while my spouse is out of the country is to have only my name on the new loan.
Now, I know that, in a community property state, that debt would normally be considered to belong to both of us, even if only my name is on it.
However...if my spouse were to decide to divorce me while still living abroad, would the fact that we've been physically separated before, during, and after the refinance process have any impact on its community property status? For instance, might it be deemed that because we were physically separated, the new mortgage is mine alone? I have no plans to divorce, and I don't believe my spouse does, but if my spouse *were* to claim to have left with the intention of divorcing me, would that mean that the new mortgage, with only my name on it, would therefore be considered solely my responsibility?
1 Answer from Attorneys
You and your wife currently still each hold a 50% interest in the home in pre-marital separate property ownership. Getting married without more does not transmute separate property into community property. The same is true for the debt. So you have no community property status in the debt or ownership as of now.
If you were to refinance, the debt would become community debt, but it could only be enforced against your 1/2 interest in the property. This is because community debt can only be collected out of community property. As I mentioned, you both own 1/2 interest in the house as separate property, not community property.
That has a couple of ramifications. 1. The debt and mortgage would only attach to your 1/2 of the home. She would own her half as separate property free and clear of the debt. 2. I am really surprised that a lender would loan on TIC property with only your 1/2 subject to the mortgage. I suspect they will demand your wife quitclaim her 1/2 to you, resulting in you owning the entire house and entire debt. That does not seem to be what you intend at all. I suppose that if the new mortgage would only be around 40% of the property value, a lender might loan to you alone secured by your 1/2, but again, that would leave your 1/2 subject to the mortgage and her 1/2 free and clear.
My best recommendation is to find a lender that doesn't have a problem with your wife signing loan papers at a US Embassy or Consulate.
This also may be a good opportunity for your and your wife to do a reevaluation and some planning of your overall financial picture. For example, putting the house in a revocable trust would have beneficial estate planning effects, and would also update and clarify ownership status, which in turn could make getting loans and other financial transactions easier.