If a house is in one of the couples names in a divorce can they refinance with out penalty?

If your friend acquires the home as part of their divorce settlement, more likely than not, they will be required by their divorce decree to refinance the mortgage and have the loan put in their name alone. If they obtain some type of jumbo mortgage loan or mortgage plus home equity loan, they are creating a huge pile of debt, not income. After the economy crashed, banks and mortgage companies are pretty tight about making sure loan to value ratios are in conformity with fair market values. It is doubtful they will be able to find anyone to secure a mortgage beyond the appraised value. If they can, they will be fully responsible for that debt. If there is any income tax issue in that equation, it would be on the federal level, not necessarily a state related income tax problem.