Obtaining and structuring a mortgage during a divorce can be incredibly frustrating for homeowners. But what makes it so different from the last time you got a mortgage?
Understanding Divorce and Its Legal Implications
According to Merriam-Webster Dictionary, divorce is the legal dissolution or termination of a marriage or marital union. Divorce laws vary globally, but most countries require court sanction or legal authority. Divorce typically involves the distribution of property, child custody, alimony (spousal support), child visitation, parenting time, child support, and the division of debt.
The legal duties and responsibilities of marriage are either canceled or reorganized, thus dissolving the bonds of matrimony between a married couple under the jurisdiction of their country, state, or county.
The Impact of Divorce on Mortgage Financing
The very definition of divorce can significantly impact your ability to obtain mortgage financing both now and in the future. If you plan to refinance the current mortgage on the marital home or purchase a new home after the divorce, seeking pre-divorce guidance from a Certified Divorce Lending Professional (CDLP®) can help alleviate many potential hurdles.
Reorganizing your legal and financial obligations often changes your overall financial picture, affecting your ability to secure home financing.
What’s Your Exit Plan?
- Selling the Marital Home: Will you sell the home to rent or purchase a new one?
- Retaining the Marital Home: Will one spouse retain the marital home and either take on the existing mortgage or secure new financing to buy out the other spouse’s equity share?
Pre-Divorce Mortgage Planning
Engaging in pre-divorce mortgage planning is a practical step when you know your marriage is ending. By planning ahead, you can ease the transition for yourself, your spouse, and your children.
- Selling the Home: Are you selling the marital home and splitting the net proceeds? If so, where will you and your spouse live post-divorce? Transitioning from a two-income family to one income can strain your purchasing power, and aspects of the divorce settlement agreement may have severe impacts.
- Retaining the Home: Are you retaining the marital home and refinancing to buy out your former spouse’s equity share? The details of the property and the financial constraints of divorce may impact your ability to obtain mortgage financing.
Addressing Overlooked Details in Divorce Mortgage Planning
Divorce often focuses on immediate issues, like distributing real property and assets, but it’s crucial to consider life after divorce. The biggest challenge lies in understanding how the various pieces of the divorce puzzle fit together.
The Role of a CDLP® in Divorce Mortgage Planning
Divorce Mortgage Planning is a holistic approach to evaluating mortgage options within the context of overall financial objectives related to divorce. 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 integrate the selected mortgage into long and short-term financial and investment goals to minimize taxes, reduce interest expenses, and maximize cash flow.
Since 2014, Certified Divorce Lending Professionals (CDLP®) with the Divorce Lending Association have been helping divorcing homeowners make informed decisions regarding their home equity solutions.
What Does a Holistic Approach Mean?
- Interconnected Entity: Looking at the situation as a whole.
- Bigger Picture: Understanding the overall impact.
- Out-of-the-Box Thinking: Not only thinking outside the box but removing the box altogether.
Approximately 70% of a CDLP®’s work involves the actual mortgage, while the remaining 30% involves working with the divorce team on the settlement process, financial and tax planning, and real property issues.
For example, the verbiage in the divorce settlement agreement and specific aspects of the real property can directly impact the ability to obtain mortgage financing. The correct verbiage in the settlement agreement can strengthen the borrowing position of a spouse exiting the marital home and looking to purchase a new house.
Success Depends on Who You Work With
Working with a Certified Divorce Lending Professional (CDLP®) during pre-divorce mortgage planning can help both spouses obtain new mortgage financing post-divorce.
Contact a CDLP® Today
For more information, contact a CDLP® today for a copy of the Divorcing Your Mortgage Homeowner Workbook. This guide will help you get organized, be prepared, and understand your mortgage financing position, whether you need to refinance the marital home in an Equity Buy-Out situation or plan to sell and purchase a new home post-divorce.
Conclusion
As a divorce mortgage planner, a CDLP® can help divorcing homeowners make more 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.
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