HELOC stands for home equity line of credit. It is a line of credit that is secured by a lien on the equity in a person’s home. In Florida, HELOC loans are usually made by banks or lending companies. A person may borrow up to a specified maximum percentage of the value of the home after deducting the amount owed on the mortgage loan used to purchase the house. Many couples use equity lines of credit to finance a home renovation, a vacation or perhaps pay unexpected medical bills. HELOCs can be very useful, but what happens to the HELOC if the couple gets a divorce?
The first question is whether the line of credit remains open after the divorce proceeding begins and whether both spouses can continue to draw money from it. Each HELOC loan reduces the home’s equity by the amount of the loan. If one spouse ends the divorce with title to the house, and if the other spouse continues to draw cash from the HELOC, that spouse is effectively taking property from the other spouse. The simple solution to this problem is to terminate the HELOC as soon as the divorce petition is filed. The failure to take this precaution may cause any number of financial headaches after the divorce.
The next question is which spouse is responsible for re-paying the HELOC balance. The answer will depend in part on the uses made of the HELOC loans and on which spouse took out the cash. These questions can usually be answered by bank or personal records. In Florida, the court may order one spouse to take full responsibility for the HELOC balance while assigning responsibility for other debts to the other spouse. The disposition of the HELOC balance can also be resolved by negotiation between the parties.
If the HELOC loan balance is small, the HELOC is unlikely to affect the outcome of the divorce. If, however, the loan balance accounts for a significant share of the couple’s debts, it could be a major issue in the divorce. Anyone contemplating a divorce who has a large balance on a HELOC loan may wish to consult an experienced divorce attorney for advice on how to provide for repayment of the loan.