What is Divorce Mortgage Planning?
Many times in a divorce, we are more focused on curing the problem at hand, i.e., distributing real property and assets, that we forget there is life after divorce. The biggest challenge is the lack of knowledge, understanding, and preparedness of how the various pieces of the divorce puzzle fit together and truly overlap.
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, financial and tax planning, real property, and mortgage planning. 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.
The CDLP® (Certified Divorce Lending Professional) works directly with the professional divorce team such as the attorney, financial adviser, mediator, etc., 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.
When mortgage financing is needed as part of the divorce settlement, working with a Certified Divorce Lending Professional, can make the process smoother and provide more successful outcomes for the divorcing homeowners. Understanding the various phases of divorce mortgage planning is key.
Breaking Down the 4 Phases of the CDLPs Divorce Mortgage Planning Model
There are 4 important phases of the CDLP's model for divorce mortgage planning:
- Vetting the House which entails an examination of ownership; property taxes; various valuation methods, etc. There are many aspects to vetting the house. Whether it's the property ownership, tax status, the value, and equity available. We need to take a deep dive into the details of the property because not only are these details important to the settlement process, the details of the real property itself may actually determine what type of mortgage financing is available or not available and these details have nothing to do with credit scores and income sources.
For example: Is the borrowing spouse on the title to the home? And if so, have they been for the previous twelve months? If not, they may not be able to access the equity needed to complete an Equity Buy-Out.
- Qualifying Income. The CDLP® will work with the divorcing clients and the divorce team to analyze the various income sources which may consist of employment, support income, or no income, and how we can work together to create qualifying income through financial and tax planning when needed. This phase can become frustrating to the divorcing client when they have sufficient cash flow each month; however, not every source of the cash flow may be considered qualifying income.
For example: If the borrowing spouse is receiving spousal and/or child support, do they meet the required receipt and continuance tests to use this income as qualified income for mortgage financing? Perhaps the borrowing spouse has just returned to the workforce, have they met the back-to-work requirements? It can be very defeating when you 'assume' you have the required income to qualify for mortgage financing but then the various sources of income cannot be considered.
- Consumer Debt Analysis can be yet another strategic move during the divorce process when mortgage financing will be necessary. The CDLP® can help evaluate how the marital or individual debt is assigned in an effort to strategically position the divorcing spouses to be in a stronger position to obtain better mortgage financing terms.
For example: Is the borrowing spouse still obligated on the mortgage to the marital home or other debt that was assigned to the other spouse? If the verbiage is insufficient in the divorce settlement agreement, the debt may still need to be considered in the borrowing spouse's debt obligations. Another issue to consider is the effect closing joint credit card accounts and then opening new individual accounts might have on the borrowing spouse's immediate credit score.
- Home Equity Solutions. The mission of the CDLP® and the Divorce Lending Association is to help divorcing homeowners make more informed decisions regarding their home equity solutions and mortgage financing opportunities during and after the divorce.
For example: If the borrowing spouse is required to do an Equity Buy-Out to acquire the vacating spouse's equity ownership, a CDLP® will not only work with them in obtaining the best mortgage options for doing so; however, they will also work with the divorce team to use the mortgage as a vehicle for financial stability and planning. Do we need to look at debt consolidation or a ROTH IRA conversion? Depending on the borrowing spouse's age, maybe a Reverse Mortgage would be in their best interest?
Home Equity Solutions go was beyond simply refinancing the existing mortgage. Working directly with the divorce financial team, a divorcing homeowner will be in a better position to make more informed decisions as to what best fits their needs and goals.
The Knowledge and Experience of a CDLP® is Key
Do you have questions about how divorce may impact your ability to obtain mortgage financing? A Certified Divorce Lending Professional's (CDLP® ) knowledge and experience can help make the transition much smoother and more successful for all parties involved.
The CDLP® brings tremendous value to the divorce team during the settlement process. Their background knowledge of family law, financial and tax planning, real property, and mortgage financing allows them to better support and assist the divorce team and divorcing homeowners.
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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