You have to live somewhere after the divorce, right? And most homeowners would prefer not to go backward by becoming renters again. While many divorcing couples may not be in a financial position to consider buying a new home during the divorce, those fortunate enough to have good credit and what appears to be adequate income to buy a new house before the divorce is final may still find the road to homeownership a little bumpy.
Here are three areas of concern to address when buying a home during the divorce process:
1. Who Owns the Property?
In most states, all property purchased by either spouse during the marriage (i.e. until the final divorce decree is entered) is considered to be “marital property”. Marital property is subject to “equitable division” in most divorce cases. If the wife purchases a new home to live in while a divorce action is pending, the title to the new home might be in her name only. But the court in the divorce case still has the power to make orders concerning the ownership of the new home because it is part of the marital balance sheet.
2. What About Qualifying for a New Mortgage?
Divorce usually entails the canceling or reorganizing of the legal duties and responsibilities of the marriage. If a divorcing home buyer qualifies for new home financing on one day, his or her financial picture may change dramatically the next day if there are orders allocating child support, maintenance, and/or debt. The requirements for mortgage financing during a pending divorce are quite different than obtaining traditional mortgage financing.
3. What if We Have an Agreement?
Some divorcing couples reach an agreement allowing a spouse to buy a new home, while the divorce is pending. However, an agreement that a person can buy a new home, is not the same thing as an agreement concerning the disposition of the new home. In order for the agreement allowing a spouse to buy a new home to be an agreement that truly allows the home to be excluded from the divorce property division process, the agreement: (1) must be in writing and signed by the parties; (2) approved by the court; (3) contain terms concerning the title and the equity; and (4) must be signed only after there has been a financial disclosure exchange. Otherwise, the agreement may be deemed invalid, and the increase in the value of the new home could be considered “marital property” subject to division by the divorce court.
It is possible to buy a new home while a divorce is pending, but the process should be carefully negotiated and approved by the court. In addition, you should speak with a Certified Divorce Lending Professional (CDLP™) to make sure that if mortgage financing is needed, it will also be obtainable.
The CDLP™ brings tremendous value to the divorce team during the settlement process because of their stronger perspective of the entire divorce process. Their understanding of the intersection of family law, financial and tax planning, real property, and mortgage financing truly separates them from other mortgage professionals in the industry.
Working with a Certified Divorce Lending Professional (CDLP™) and incorporating Divorce Mortgage Planning into the divorce settlement may help both spouses obtain new mortgage financing post-divorce.
Contact a CDLP™ today for a copy of the Divorcing your Mortgage Homeowner Workbook, a guide to credit, real estate, and mortgage financing after divorce. This workbook will help you get organized, be prepared, and understand your mortgage financing position whether you are needing to refinance the marital home in an Equity Buy-Out situation or prepare to sell and purchase a new home post-divorce.
As a divorce mortgage planner, the CDLP™ can help divorcing homeowners make a more informed decision regarding their home equity solutions while helping the professional divorce team identify any potential conflicts between the divorce settlement, home equity solutions as well as real property issues.
Divorce Mortgage Planning is a holistic approach to the process of evaluating mortgage options in the context of the overall financial objectives as they relate to divorcing situations. Working directly with the divorce team, a CDLP™ understands the intersection of divorce, tax, real estate, and mortgage financing. The role of the CDLP™ is to help integrate the mortgage selected into the overall long and short-term financial and investment goals, to help minimize taxes, to minimize interest expense, and maximize cash flow.
Involving a Certified Divorce Lending Professional (CDLP™) early in the divorce settlement process can help the divorcing homeowners set the stage for successful mortgage financing in the future.
This is for informational purposes only and not for the purpose of providing legal or tax advice. You should contact an attorney or tax professional to obtain legal and tax advice. Interest rates and fees are estimates provided for informational purposes only and are subject to market changes. This is not a commitment to lend. Rates change daily – call for current quotations. The information contained in this newsletter has been prepared by, or purchased from, an independent third party and is distributed for consumer education purposes.
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