Have you heard the phrase, "I want to divorce this house!?"
In reality, you can't simply divorce the house. Just as you can't simply divorce the mortgage either. It might be wishful thinking for such an easy solution; however, there is just too much involved with such a large marital assest.
- Addressing the legalities of ownership in order to determine which party should receive any equity ownership.
- Handling the tax ramifications from selling the marital home or mitigating potential capital gains taxes for one or both parties on a future sale.
- Posturing either spouse to be in a strong position to purchase a new home post-divorce.
The Journey of a Divorcing Homeowner
The divorcing homeowner goes through a journey of self-reflection, negotiations, settlement, and the mortgage process and hopefully ends with a successful conclusion.
The traditional journey begins with "What to do with the marital home." Figuring out should one spouse keep the house; should they sell the home; what about the kids, and then there's the financial aspect of 'can I afford to keep the home with only one income?
Once the decision is made, the negotiations start – if one spouse is retaining the home – what's the value; will there be an equity buy-out? Other negotiations include spousal support, the time frame in which the refinance needs to be final, or when to list the property for sale.
The settlement agreement outlines the division of marital assets, any assignment of debt, etc. However, from a mortgage planning and execution perspective, the verbiage in the settlement agreement has to be very clear and not conflict with mortgage guidelines – which, unfortunately, is often the case making it harder to obtain mortgage financing post-divorce for both spouses.
Mortgage planning shouldn't happen after the negotiation and settlement stages. Divorce Mortgage Planning is a real thing and should be started during the negotiation stage.
For example – How to value the marital home and getting the property appraised.
- How is the value of the marital home determined during the negotiation stage? The mortgage lender can only use an appraisal explicitly done for them, so what happens if the values differ?
- Another example – how is support determined when the paying spouse has fluctuating income?
- What if a lump sum payout was agreed upon in place of monthly support?
While one can't simply 'divorce the house', incoporating divorce mortgage planning in to the process can have a significant impact on the success of the divorce settlement.
Divorce Mortgage Planning is the ability to put into play the desired outcome by pairing the needs and options available while incorporating the necessary details and clarity into an executable settlement agreement to obtain closure and peace of mind successfully.
Working directly with the divorce team, a Certified Divorce Lending Professional (CDLP®) incorporates divorce mortgage planning into the overall process with a unique and solid understanding of the intersection of family law, financial and tax planning, real property, and mortgage planning.
There are many examples of how negotiations and settlement may conflict with mortgage rules and regulations and the benefit of integrating divorce mortgage planning into the divorce process. As a CDLP®, I can help ensure the conclusion ends in the successful execution of the court orders bringing peace of mind and closure to both spouses.
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.
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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