What if the house is worth less than we owe?

The realistic options, plainly. Bring cash to closing, splitting the shortfall — painful but clean, and it ends the entanglement. Keep the house jointly for a while with written terms — who pays, who lives there, what triggers the eventual sale — buying time for the market or the principal balance to catch up; attorneys must paper this tightly, because staying financially married after the divorce is its own risk. Or a short sale, where the lender agrees to accept less than the balance. I worked short sales through the Great Recession, from 2007 to 2011 — closing tables with Kleenex instead of champagne — and there is a dignified way through it.

Your attorney and possibly a tax pro need seats at this table; I'm neither, and this isn't legal or tax advice. There's no candy version of this answer. But there's a path, and you don't have to find it alone. Just call me.