HELOCs and Divorce: How Should HELOCs Be Handled Before Splitting Assets?

Last updated: June 2025

Splitting assets during a divorce is particularly challenging when real estate and shared financial obligations must be addressed. Couples also frequently underestimate the problems that might arise when there is a pairing of HELOCs and divorce.

Whether it was used to fund home renovations, consolidate debt, or cover joint expenses, a HELOC can become a major sticking point in the property settlement process.

This guide breaks down the essential considerations surrounding HELOCs and divorce, outlining what couples need to know before separating property, negotiating settlements, or facing unexpected financial obligations.

What is a HELOC?

A HELOC offers flexible borrowing against home equity, functioning like a credit card where interest is charged only on the funds withdrawn. Many couples open HELOCs to finance improvements, manage cash flow, or pay off other debts.

Why does a HELOC matter in a divorce?

When divorce enters the picture, this shared credit line becomes a financial liability that must be addressed. 

Key concerns include:

• Ongoing draw access if the account remains open
• Shared legal responsibility for repayment
• Impact on credit scores if one party misses payments
• How the outstanding balance is allocated in the divorce

If the HELOC was opened jointly, both spouses are legally on the hook, even if only one intends to stay in the home or claims responsibility for the balance.

Learn more about how a HELOC works.

Is a HELOC considered marital debt?

In most divorces, a HELOC opened during the marriage is considered marital debt, regardless of which spouse initiated the account or used the funds. 

Courts typically include it in the asset and debt distribution process, especially in states that follow equitable distribution rules.

Even in community property states, the presumption is that debts incurred during the marriage are shared—unless one spouse can prove the HELOC was used solely for non-marital purposes, like funding a separate business or individual investment.

That said, exceptions apply:

• If the HELOC predates the marriage, it may be treated as a separate debt
• If only one spouse is listed on the account, and funds were used for personal reasons, liability may be contested
• State-specific laws can influence how HELOCs are viewed and divided

Top 4 ways to handle a HELOC before divorce

To avoid financial confusion (or worse, legal consequences), couples should work with attorneys and lenders to choose one of the following approaches:

1. Pay off the HELOC before asset division

Paying off the HELOC before divorce negotiations is the cleanest solution. 

Whether the funds come from savings, a refinance, or proceeds from a home sale, closing the account removes shared liability and simplifies negotiations.

Pros:

• Eliminates the risk of future defaults
• Frees both parties from joint debt
• Simplifies property transfers

Cons:

• Requires available liquidity or access to alternative financing
• May delay divorce finalization if the payoff process is complex

2. Refinance to remove one spouse

If one spouse is keeping the home, they may refinance the HELOC or convert it into a new loan in their name only. 

This option allows the other spouse to be released from liability and is often used in conjunction with a mortgage refinance.

Pros:

• Clears financial ties between ex-spouses
• Keeps the property intact for the spouse retaining the home

Cons:

• Requires credit and income approval
• It may come with new loan terms and closing costs

3. Close the HELOC account

Some couples choose to close or freeze the HELOC during separation to prevent additional borrowing. 

Lenders may either permit the account to remain frozen with a balance or require the balance to be paid off before doing so.

Pros:

• Prevents future financial entanglements
• Limits risk of unauthorized spending

Cons:

• Closing may trigger payoff or affect credit utilization
• Requires coordination with the lender

4. Leave the HELOC open with a legal agreement

In some amicable divorces, spouses agree to keep the HELOC open temporarily, especially if it’s still needed for planned renovations or shared expenses. This option demands clear documentation.

Pros:

• Flexible for ongoing projects or transitional living situations
• Can be used as a liquidity bridge

Cons:

• Risk of default still applies to both names
• Must be defined clearly in the divorce decree

Risks of not addressing a HELOC in divorce

Failing to resolve a HELOC formally can lead to:

• Shared liability after divorce: Both names remain legally responsible for repayment
• Damaged credit: One missed payment affects both parties
• Difficulty obtaining future credit: Open balances affect your debt-to-income ratio
• Unexpected draws: If the line remains active, one party could draw funds without the other’s consent.
• Post-divorce litigation: Courts may need to revisit the issue if disputes arise later

Real-world example: A HELOC mishandled in divorce

Hypothetical scenario: Alex and Casey divorced after 15 years of marriage. They shared a HELOC with a $35,000 balance on their jointly owned home. Casey agreed to stay in the house and continue paying the HELOC, but never refinanced. 

Two years later, financial hardship led to missed payments. Because Alex’s name remained on the account, their credit score plummeted, even though they hadn’t lived in the home since the divorce.

This outcome could have been avoided with a payoff, refinance, or lender release.

Legal and financial planning tips for HELOCs and divorce

• Request a payoff statement from the lender during settlement talks
• Freeze the account during negotiations to avoid surprise draws
• Document how the HELOC will be handled in the divorce decree
• Consult both a family law attorney and a financial advisor
• Notify the lender of any ownership changes and pursue account updates

FAQs about HELOCs and divorce

Can I remove my name from the HELOC after divorce?

Only if the account is paid off, closed, or refinanced. Lenders typically do not remove borrowers from existing HELOCs without replacing the loan.

Do I have to split the HELOC balance 50/50?

Not always. The court may assign responsibility based on income, usage, or other equitable considerations.

Is the HELOC interest still tax-deductible?

Only if funds are used to improve the home, thereby securing the loan, is divorce-related use not deductible. Consult your tax advisor.

Can the lender freeze the HELOC during divorce?

Possibly. Some lenders will freeze or suspend access at the borrower’s request during a legal separation.

Final thoughts: Protecting your equity and credit during divorce

A home equity line of credit can be a useful tool during marriage, but it can be a potential minefield during divorce. 

Unresolved balances, shared liability, and unclear agreements can lead to long-term financial headaches. The best approach is proactive planning and full transparency between spouses, attorneys, and lenders.

Addressing HELOCs and divorce early ensures a clean financial break and safeguards your credit. Whether you choose to pay it off, refinance, or close the account, make sure your agreement is legally binding and thoroughly documented in your divorce settlement.

Need help understanding your home equity before a divorce?

Use HomeEQ’s tools to estimate your HELOC payoff or explore refinance options.

Start here to check your eligibility securely and quickly.