In a divorce, the focus is often on addressing immediate issues, such as distributing real estate and assets, while overlooking the future impact. A lack of knowledge and preparedness about how various aspects of the divorce process overlap can lead to costly mistakes. Here are three financial mistakes to avoid when negotiating the marital home during a divorce settlement.
1. Being Emotionally Attached to the House
Don’t Be Married to the House
The marital home can evoke strong emotions, which can cloud judgment and lead to poor financial decisions. Divorcing spouses who are emotionally attached to the family home might not realize they can't afford to keep it. They may fight to retain it, sometimes sacrificing essential financial planning for retirement. It's crucial to separate emotions from assets and view the home from a financial perspective.
The home represents significant cash expenses, including mortgage payments, property taxes, repairs, and utilities. Let go of emotional attachments and focus on maximizing your finances. Ensure you have enough cash for living expenses post-divorce by making informed decisions.
2. Not Producing an Accurate Budget
Create a Realistic Budget
Divorcing spouses often underestimate living expenses when creating their initial budget for temporary spousal support, leading to financial shortfalls later. Enlist a financial professional to help create a comprehensive and accurate budget. Remember, housing expenses go beyond the monthly mortgage payment. Factor in non-recurring costs of owning and maintaining the property, such as lawn care, broken appliances, fence repairs, and leaky faucets.
3. Failing to Consider Your Eligibility for Mortgage Financing
Understand Mortgage Financing Post-Divorce
Divorcing spouses who previously had mortgage financing might not realize how divorce impacts future mortgage eligibility. Whether refinancing the current mortgage for an Equity Buy-Out or purchasing a new home, divorce can complicate the process.
The spouse retaining the marital home may face qualifying issues if support income is used for mortgage approval. Similarly, the spouse vacating the home to purchase a new property while still on the existing mortgage may struggle to qualify for a new mortgage.
The Value of a Certified Divorce Lending Professional (CDLP®)
Working with a Certified Divorce Lending Professional (CDLP®) and incorporating Divorce Mortgage Planning into the divorce settlement can help both spouses secure new mortgage financing post-divorce. The CDLP® brings tremendous value to the divorce team during the settlement process due to their comprehensive understanding of family law, tax law, real estate, and mortgage financing. This unique perspective separates them from other mortgage professionals.
A successful divorce settlement results from putting the pieces of the puzzle together so that both divorcing spouses come out whole or on the road to recovery. Each member of the professional divorce team should bring value and perspective that benefit the overall outcome.
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 organize, prepare, and understand your mortgage financing position, whether you need to refinance the marital home in an Equity Buy-Out situation or are ready to sell and purchase a new home post-divorce.
As a divorce mortgage planner, the CDLP® can help divorcing homeowners make informed decisions regarding their home equity solutions while assisting the professional divorce team in identifying potential conflicts between the divorce settlement, home equity solutions, and real property issues.
Holistic Approach to Divorce Mortgage Planning
Divorce Mortgage Planning is a holistic approach to evaluating mortgage options in the context of overall financial objectives related to divorce 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 selected mortgage into the overall long and short-term financial and investment goals to minimize taxes, interest expenses, and maximize cash flow.
Involving a Certified Divorce Lending Professional (CDLP®) early in the divorce settlement process can help divorcing homeowners set the stage for successful mortgage financing in the future.
