Episode Description - Trapped by Divorce Debt: One Mom's $5K Mortgage Nightmare
When Caitlin made the difficult decision to separate from her husband, she discovered that untangling their shared mortgage would be far more complicated than ending their marriage. Less than a year after purchasing their home together, both names remained on the loan with a crushing $5K mortgage payment each month. Meanwhile, the house has already lost value, leaving them underwater.
Working 60 hours a week between her full-time job and part-time work, plus receiving VA disability benefits, Caitlin technically earns enough to cover the mortgage—but barely, and with no safety net for emergencies or unexpected expenses.
Caitlin’s husband refuses to pay for divorce or refinancing costs, leaving Caitlin to navigate loan assumptions, separation agreements, and the terrifying prospect of going it alone financially. But in this coaching session, she discovers she has more options and negotiating power than she realized.
Key Takeaways From This Episode with Caitlin
Caitlin's Situation:
- Recently separated from spouse who moved out this weekend
- Both names on mortgage of home purchased less than a year ago for $673,000
- Home currently worth $665,000 (upside down on loan)
- Monthly mortgage payment is $5,000 including taxes and insurance
- Moved specifically for her two special needs children to access better school resources
- Works 60+ hours per week plus receives VA disability payments
- Has about $19,000 in credit card debt and $40,000 in retirement savings
Key Options Discussed:
- Loan assumption - $3,000-$4,000 cost vs. $13,000+ refinancing
- Waiting period - Virginia requires 6-month separation before divorce, giving her time
- Negotiation strategies with spouse regarding mortgage responsibility
Karen's Coaching Advice:
- Create detailed budget and balance sheet to understand true financial position
- Consider working with certified divorce financial planner
- Use the upside-down mortgage as negotiating leverage (selling would cost both parties ~$10,000 each)
- Explore negotiation options: spouse pays assumption costs, extended timeline before removing his name, or staying married longer to improve financial position
- Focus on paying down debt ($1,000/month freed up) and building emergency fund
Breakthrough Moment:Caitlin realized she has multiple choices rather than feeling trapped, shifting from anxiety to empowerment about her options for moving forward.
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Transcript
Trapped by Divorce Debt: One Mom's $5K Mortgage Nightmare
SUMMARY KEYWORDS
separation, negotiation, breakthrough, empowerment
SPEAKERS
Karen Covy, Caitlin
Karen Covy Host
00:08
Welcome to Breakthrough Divorce Coaching. I'm your host, Karen Covy, and this is a very special series of the Off the Fence podcast where you get a front row seat to live coaching sessions with real people facing real challenges in divorce. There's no scripts, no theory, just raw, powerful conversations that lead to real breakthroughs, because one breakthrough can change everything. If you've ever wondered what divorce coaching looks like behind the scenes, this is your chance to find out. So, without any further ado, let's go witness a breakthrough. Hello, Caitlin, welcome.
Caitlin Guest
00:51
Hi Karen, Thank you so much for your time today.
Karen Covy Host
01:02
You're welcome. Thank you for agreeing to do this and I just want to know how can I help you? What's the problem that you're grappling with right now?
Caitlin Guest
01:02
Well, I recently let my current spouse know that I would like to separate and he has moved out as of this weekend. We were together in the house for about a month while he prepared to get a place and anyway, we both purchased this home less than a year ago and both of our names are on the mortgage, so it's been less than a year. And he was very angry when I let him know that I wanted the marriage to end. So he insisted that I look into refinancing.
01:44
That option proved to be very expensive and not very practical. There was less than a half a point of the percentage of an interest and our interest rate is locked in at 6.67, so it's very high. So they explained that the closing costs, which would exceed $13,000, couldn't really be rolled into anything because we still owed like 99% of the loan because we just moved. So another option I found out about through friends and coworkers was that the loan could be assumed. I could go through the current lender and go through a loan assumption process which would be similar to refinancing in that I would have to submit all of my documentation, banking, payroll stuff but it would be less expensive, but somewhere between $3,000 and $4,000 to do the loan assumption.
02:46
But then a colleague of mine said well, you know, you don't have to do anything right now. You're still married and he can't force you to take his name off the mortgage. So with our separation date being at the end of July, the final the divorce can't occur anytime. We do not have children together. So but there still is a six-month period in the state of Virginia, so until the end of January there's really nothing that he could do to force you to take his name off the mortgage. So I wanted to ask you what your advice would be and just kind of take it from there.
Karen Covy Host
03:32
Okay, I guess let's start really basic Do you want the house? Do you want to keep the house?
Caitlin Guest
03:39
It is. We moved for my children. I have two special needs children and we were living in a city in Virginia that was not really. It lacked the funding and resources to really provide them with the level of special education that they required. So, we moved to a better town, which wasn't very far, but it is in the ideal location for them. The school bus comes up to our driveway and they're established. Now. Their IEPs got completely revamped. This is definitely the place that they need to be. Things are so much better for them. So, yeah, I do want to stay in the house.
Karen Covy Host
04:21
So, when you're in this house right now, the kids are all established. When you said you could assume the mortgage, did you actually talk to the mortgage company that has the mortgage with your house right now and they said, yes, it's assumable, because not every loan is.
Caitlin Guest
04:42
Yes, it is assumable. It's actually a VA loan, so he is a veteran and I am a veteran, so, that being said, and we don't own any other properties, so that is an option for me.
Karen Covy Host
04:57
And how much fair market value of the house right now? How much do you think it's worth?
05:06
I believe I saw $665,000.
Karen Covy Host
And how much is your loan?
Karen Covy Host
05:18
Caitlin Guest
It was $673,000, I think, because of the closing costs.
Karen Covy Host
So you're upside down.
Caitlin Guest
Yes
Karen Covy Host
okay, and how much is the monthly payment for the property?
Caitlin Guest
It's $5,000 just for the mortgage.
And when you say just for the mortgage, does that include insurance and taxes too, or it does not?
Caitlin Guest
It does include the insurance and taxes.
and what do you bring in per month? Um, I, I do get a disability check um from the VA that covers that Um, and I work, um, I have a full-time position, um, and then I'm also working part-time on top of that. So I'm working about 60 hours a week, and then I'm also working part-time on top of that.
Karen Covy Host
Wow, yeah.
Caitlin Guest
But like the electric bill last month was like $350 or something. Now I had, like I had my two teenage step-sons in here and you know my husband, so I don't know like there's a lot of electronics and so I hope that it doesn't stay like that. But yeah, I'm very nervous to see how, in this first month without his assistance, how things pan out. So I'm kind of waiting to see and I'm just trying to make as much money as I can.
Karen Covy Host
06:47
So, with all of the household expenses, can you cover it? Can you pay for all of the mortgage, the electric, the utilities, all the things, and still have money left over for gas and your car and food and what you know? What are the? What do your numbers look like? Do you know your numbers?
07:09
Um, yes, so, um, I make. So my, my disability check pretty much covers the mortgage, Um, but the um, my, my actual job, job, um, I'm making an additional um like somewhere around eight, eight to 9,000 a month. You know my kids go to therapies and some of this stuff isn't covered by insurance. Uh, you know, there's a lot of expenses, there's a lot of money coming in but there's a lot of money going out, so it's just going to be stressful but I can do it. I have some credit card debt, but it's nothing crazy, I'm making money.
Karen Covy Host
07:58
How bad are you on the credit card debt?
Caitlin Guest
08:03
I have $10,000 on one card and then I have $9,000 on the other card. So it's under $40,000. Okay, and a car payment
Karen Covy Host
Okay, have you done a budget.
Caitlin Guest
I have written the numbers down. Yeah
Karen Covy Host
08:21
And when you look at all the money coming in and the money going out on an average basis per month, because I'm sure the therapies, the price varies from time, you know, depending on how many things your sons get, but at the end of the month can you make all the payments by yourself, without help from your husband.
Caitlin Guest
08:43
Yes, I can.
Karen Covy Host
08:45
Okay Then. So keeping the house is doable for you financially.
Caitlin Guest
08:52
Yes, I'm not going to have as much as I like used to, and I am, I'm worried, you know, just because things come up Like I got a, I ran over a piece of granite in my tire and they're like we can't patch this, you need to get a new tire. And then, oh sorry, we don't have the kind of tires you do, so you should probably get more than one to balance out your axle. So $600 on tires. You know, it's just, these things come up all the time. But that's life, right? That's adulting.
Karen Covy Host
09:25
Yeah, do you have any kind of emergency fund put together?
Caitlin Guest
09:28
No, okay, I need one.
Karen Covy Host
Yeah. So here's the thing In terms of what your friends said about the house, they're right in that you don't have to do anything today, but six months or five months now is going to come around sooner than you think, and so step number one is to see, in a divorce, what are you likely to get If you keep the house. Great, you get that. That's not an asset At this point. Keeping the house is a debt. So, can you? You know you can keep that, but are you going to be able to get that emergency fund? Because if you don't have that, the roof leaks or something happens with the house, you never know. Now you're going to have to pay for that and you don't want to be so stressed out. You're already working 60 hours a week and, yeah, according to your budget, you can cover your bills. But if that's all you're doing and you're living paycheck to paycheck, that is an extraordinarily stressful way to live and not particularly financially sound. So your priorities are number one, to pay down the debt. Number two, to get an emergency fund. And then number three to, you know, take over the house Because at some point when you get a divorce, you're going to have to buy out your spouse's interest.
11:02
The challenging part is there's nothing to buy out, right. You're going to have to either assume the loan or refinance. It sounds like refinancing is not an option because you don't have the money to do that. If you assume the loan, it's a $3,000, $4,000 cost. Do you have the money to do that?
Caitlin Guest
Yes
Karen Covy Host
Okay, so that's a viable option and you've got a couple of months to get everything going in the right direction. Are you able to save any money every week or every two weeks? Whatever you get paid? Can you save money from your paycheck to start putting money in front for yourself?
Caitlin Guest
11:46
Yeah, that's a Um, I really, and I didn't even have really a retirement account until like three years ago. Um, so I have not been a good financial planner. So, um, luckily I've got like, um, like about $40,000 in retirement. I guess for my age it should be more. But, um, you know, I'm kind of starting from the ground up at this point,
Karen Covy Host
12:08
But you know what you're starting and that's positive and that's amazing, because here's what you're looking at. You're looking at having to pay for the divorce. There's going to be some attorney's fees involved, even if do you think your husband, like when you split, do you think that he's going to fight over something?
Caitlin Guest
12:35
Well, he um, that weekend that I told him what I wanted to do, he went online and found a template for a separation agreement and drew it up and sent it to me and I said, oh wow, he must really want to do this. Um, he's put me through a bunch of things after that, as you can imagine, but I went ahead and had it notarized and he had it notarized as well. So, and we're basically, you take yours, I take mine, you stay in the house, that's it. You, you assume the loan. So no, he doesn't want anything. He, we both had contentious divorces before this. So I think you know it's kind of at least. I don't think he's going to want anything from me. I hope not.
Karen Covy Host
So, right now, what are you feeling?
Caitlin Guest
Oh, I'm just. I'm very anxious, I'm very nervous about keeping everything going, and it's a lot of strain to work as much as I am and um make sure that my children are still on track with where they need to be, um with given their issues and needs. Um so, and my parents have been helping me with them. Um, and they go back to school this week, thank God. Um so they'll have a little bit more structure and routine. But um, you know, I just want to keep, keep it together, and um, you know that that's pretty much it. That's all that we're all trying to do, right?
Karen Covy Host
14:02
Have you ever worked with a financial advisor?
Caitlin Guest
14:05
No.
Karen Covy Host
14:07
So here's what I'm thinking for you, because it seems like you've run the numbers and it looks like you can make ends meet. What's beautiful about your situation is that you have a little bit of time, because there's nothing, not only that you have to do in the next few months. There's very little that you can do in terms of moving the divorce forward. Right, you've got to wait the statutory time period that gives you time to dive into this. I would strongly recommend working with a certified divorce financial planner, or even just going online and downloading all of your information, like put it into a budget and a balance sheet so you can start to look at numbers, right, and make sure that those numbers show that you can pay the bills every month, because that's you don't want to be stressed out and you don't want to have to be working 60 hours a week. So, if you I mean, how would that feel if you knew? Oh, I can work 40 hours a week and still pay the bills, what's the difference in that?
Caitlin Guest
Yeah, it would be nice. Yeah, more than nice.
Karen Covy Host
15:29
So what? Knowledge is power? And you have choices right now. So, getting the knowledge together and the data together, input it in a budget and balance sheet. I mean, there's a lot of online programs that can make sure, and I suggest using a program because they can make sure that you're not missing something. So you get that data and you make your budget ASAP, right? And then I want you to also make a balance sheet that shows what do you own and what does he own. Do you know what his financial situation is?
Caitlin Guest
16:02
No, that was one of the major problems of our marriage, so we never talked about it. Yeah, okay so we filed our taxes together. So I mean I guess I can look into our tax returns and see what he has. I think his ex-wife gets some of his retirement, Um, but I don't know much else. And he pays. He pays child support. So Right.
Karen Covy Host
16:29
So I'm sure he's not going to want to be paying you a lot of money. But the question is what assets did he accumulate during the marriage? What did you accumulate during the marriage? If you both have an equal amount okay great. Then that means you know you can do exactly what you said. You keep yours, he keeps his, no problem. But if yours is $40,000 in a retirement account and that's all you have, that's not $40,000. That's $40,000 after taxes, and if you need to withdraw anything, there's a penalty to do that. So that's not an option you want to take. You know, if that's all there is, you don't want to be drawing off of that. You really need that emergency fund. So it's about for you looking out I mean the loan that you have. You've got $10,000 credit card and $9,000. What was the $9,000 debt for?
Caitlin Guest
17:29
It's two different credit cards 19,000.
Karen Covy Host
17:38
Yeah, how would it be if you didn't have that debt? How much money would that free up every month for you?
Caitlin Guest
17:39
A thousand dollars.
Karen Covy Host
17:42
Boom. And with thousand dollars a month you could. If you put that into savings, that's $12,000 in a year. Here's the deal. Your monthly rent in this house is high. $5,000 a month is a lot of money and it may be the most beautiful house in the area or an apartment someplace that you could have for you and the kids. That's in the same school district, in the same area, so that their IEP still stays the same, but your monthly payment goes down. Is there anything like that available?
Caitlin Guest
18:28
I went looking and I mean it, everything is pretty close to like 4,000. So it's like, okay, I'd save a thousand a month, but then for me to move it would probably cost me like almost $10,000, you know. So, yeah, it just doesn't seem economical at this point, I don't know. And then right now the market is just it's a nightmare. I spoke with my realtor. I said, hey, what would it look like if I tried to list this place? He's like, do not list it If you absolutely have to try to rent it right now. But he said, for the next year to 18 months, it is just a nightmare out there. So yeah, I don't think it's really an option for me.
Karen Covy Host
19:13
Okay, that's at least you know that. Here's what your choices are, because you you're not in a bad position. It's tight but you do have choices. So first of all, right now your house is upside down. So if you went through a divorce and the judge said you got to sell this house, not only would you lose, you would have to bring money to the table because you don't have enough equity in it, but in addition to that you'd have to pay closing costs. So you're looking at I mean you're probably $8,000 under plus closing costs so what $20,000 you two would have to bring to the table. That gives you negotiating leverage with your spouse. So here are things that you can talk about with him. Number one is not taking his name off of the loan, definitely until you have to get divorced. But even after that you could negotiate.
20:15
Okay, look, the realtor says we can't sell. And this is a we right, it's. The two of you are on the deed and the mortgage together. So you say, okay, we can't sell now. If we have to sell now, we're each going to have to bring 10 grand to the table. So I'll tell you what we can keep you on the mortgage for a year or two years, and you know, at that point we can talk about what do we do, right? Right, so in other words, you can negotiate time with him In exchange for him not coming with $10,000 to the table and you having to sell the house and do the same.
20:56
You say, okay, will you agree to let me keep your name on the mortgage for two years, three years, whatever time you might need to get your debt under control, to get that emergency fund, to get your feet back on the ground. Does that make sense? So one option is to extend the amount of time before you have to take his name off of the loan. One option is to you know, use this time that you do have to get ahead of the game a little bit and it doesn't sound like working anymore is going to be enough. I mean, you're already working 60 hours a week and you got two young kids. Working more isn't going to cut it.
21:42
So if you can't increase your income, can you lower your expenses? That's something to look at. Or maybe you say to him okay, I can get your name off of the mortgage by assuming it now, but you got to pay the closing costs. Those closing costs are still less than what he would have to pay if you sold the house. He's still not getting a bad deal. So that could be the deal, that could be the price that he pays for getting out of the mortgage. And I saw the look on your face when I said that like, oh, I don't know if he's going to agree to that, but here's
Caitlin Guest
Well yeah, with the attorney, and I did find an attorney for a non-contested divorce at a flat rate of like $1,500. So that's very reasonable.
Karen Covy Host
22:39
So here's the deal. You could say to him and I know it's scary because you're expecting him to say no, but right now it's already like he said no. You have nothing to lose by trying and say to him look, it's $1,500 for the lawyer, it's $4,000 or whatever it is to refinance, so that's $5,500. You pay me $5,500, so we take care of all these costs and we both walk away clean Done. I keep mine, you keep yours. What do you think?
Caitlin Guest
23:18
He already told me. He said I'm not paying for a lawyer, I didn't want this divorce
Karen Covy Host
Okay then if he's not paying for a lawyer, what if you stay married?
Caitlin Guest
Good call. I mean, a lot of people do right. Oh yeah, I have questions all the time. They're like oh, we haven't lived together in 15 years, but we're still married. Oh my gosh, oh man, that's a good call. Oh my gosh, oh man, that's a good call.
Karen Covy Host
23:56
I mean, you don't want to stay married to someone that you have no relationship with indefinitely. That's probably not the best situation, but right now money is tight, and the point of all of this is you have choices, and so that I mean, when you think that you've just got to do this, and oh my God, oh my God, how do you feel at that point?
Caitlin Guest
24:15
Oh, like a wreck.
Karen Covy Host
24:16
Yeah, a hundred percent. And so, understanding, you have choices and you can say to him okay, great, we won't divorce, that's fine. Or you can pay me this money and I can refinance and get your name off and you're done and you walk away. Or you don't want to do that, you don't want to pay me anything, fine, we'll just keep your name on the mortgage and I'll refinance in five years, once I've been able to get ahead. Those are your options. Now, how do you feel?
Caitlin Guest
24:49
Wow, you're great.
Karen Covy Host
24:53
Thank you, thank you, but that's. It's all about understanding what your choices are, and that puts up a whole new world.
Caitlin Guest
25:05
Yes, wow, thank you, Karen.
Karen Covy Host
25:14
You're welcome. So what I want you to do is think about all of this and get yourself ready and have a conversation, and I'd love to know what happens
Caitlin Guest
Me too.
If you enjoyed today's episode, if you'd like to see more live divorce coaching, do me a big favor. Give this episode a thumbs up and drop the word more in the comments below. And if you'd like to be a guest on the show and apply to get your own free live divorce coaching, just go to KarenCovy.com slash free coaching to apply. That's KarenCovy.com/freecoaching all one word and apply now.
