Often in a divorce, we are more focused on curing the problem at hand, i.e., distributing the real estate 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 indeed overlap. You don’t know what you don’t know, and not being prepared can cause more damage than good.
Here are three financial mistakes to avoid when negotiating the marital home during a divorce settlement.
Being Emotionally Attached to the House
Don’t be married to the house. The marital home often brings an emotionally charged debate to divorce negotiations, which can impair good decision-making. Often, divorcing spouses that are emotionally attached to the family home don’t realize that they can’t afford to keep it. Yet, they fight tooth and nail to keep it, sometimes at the expense of retirement planning. Instead, try separating the...
One of the most important team members in the collaborative divorce process is the financial neutral. The financial neutral is an impartial expert in his or her field. When a primary asset of the marital estate is the marital home and other real estate assets, having a Certified Divorce Lending Professional (CDLP™) as a financial neutral on the divorce team becomes increasingly desirable.
In many divorce settings, negotiations break down over financial issues or concerns, oftentimes leading to litigation. The CDLP™, as a financial neutral, offers both parties a balanced, thorough financial evaluation of the current mortgage and future mortgage financing requirements and offers realistic solutions to obstacles in negotiations.
Depending on each individual situation, the CDLP™ can perform a variety of functions in a collaborative divorce, such as:
A professional divorce team has a range of team players, including the attorney, financial planner, accountant, appraiser, mediator, and yes, a divorce lending professional. Every team member has a significant role in ensuring the divorcing client is set to succeed post-decree.
Diverse skills allow the divorce team to think about a specific problem in a different, and often more strategic, way. By looking at a problem from different angles and drawing on a wealth of experience and knowledge from all team members, allows for innovative and creative solutions.
1 – Diverse Teams Fill In The Knowledge Gap | The reality is that no one knows everything. Teams solve problems faster when they’re more cognitively diverse.
2 – Diverse Teams Fill In the Perspective Gap | Perspective is the capacity to view or think about a situation or problem wisely and reasonably.
3 – Diverse Teams Fill In the Experience Gap | Experience mostly comes through time,...
What is Divorce Mortgage Planning? 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.
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.
There are 4 phases to the CDLPs model for divorce mortgage planning.
Where does a Certified Divorce Lending Professional (CDLP™) fit into the mediation process?
Mediation is a process in which a third person helps the participants in a dispute to resolve it. In order to resolve the dispute, the participants must negotiate a solution. Problem-solving is part of the negotiations. The process of mediation is the management of other people’s negotiations, and the mediator is the manager of the negotiations who organizes the discussion of the issues to be resolved. The more coherent and organized the process, the easier it is for the participants to arrive at solutions that are mutual and appropriate for them.
At the center of the mediation process is gathering the data (fact-finding), defining the problem, and developing options. When the subject matter is specialized as in negotiating the marital home, the cycle becomes specialized and may require the need for mediation support from a Certified Divorce Lending Professional (CDLP™).
Collaboration | Working together to achieve a goal. A recursive process where two or more people or organizations work together to realize shared goals.
It takes teamwork to bring the typical divorce settlement together. There are usually quite a few people involved from divorcing clients, attorneys, financial planners, mediators, real estate agents, appraisers, and mortgage professionals.
One of the most important team members in the collaborative divorce process is the financial neutral. The financial neutral is an impartial expert in his or her field. When a primary asset of the marital property is the marital home and other real estate assets, having a Certified Divorce Lending Professional (CDLP) as a financial neutral on your team becomes increasingly desirable.
In many divorce settings, negotiations break down over financial issues or concerns, oftentimes leading to litigation. The CDLP is a financial neutral who offers both parties a balanced, thorough financial...
A reverse mortgage is a type of loan that allows homeowners to borrow money against the equity in their homes. Reverse mortgages enable homeowners to tap into a line of credit or receive from a lender a fixed monthly payment that can help them pay off debts, make upgrades to their property, manage large expenses, or supplement their retirement income.
Divorcing clients over the age of 62 may have the option of utilizing a Reverse Mortgage for an Equity Buyout and keeping the home. Not only may a Reverse Mortgage be a viable option for divorcing clients who want to remain in the marital home; it may be a wise financial planning decision as well. Taking a reverse mortgage can also have implications on the tax bill, and for configuring potential Social Security income. You may be able to limit the income tax exposure by using cash flow from a reverse mortgage, rather than taxable withdrawals from a 401(k) or other retirement investment, to pay off...
“I can’t buy a new home if I’m still on the marital mortgage!” is often the statement made by the spouse leaving the marital home. Unfortunately, this isn’t necessarily true.
In many divorce situations, the spouse retaining the marital home won’t qualify to refinance the current mortgage and the vacating spouse believes they can’t qualify to purchase a new home while remaining on the mortgage for the marital home.
This thought process seems rational; however, there are certain steps and verbiage to include in the divorce settlement agreement that can remove this obstacle. While many mortgage companies have their own guidelines or ‘overlays’ to investor underwriting guidelines, a Certified Divorce Lending Professional (CDLP) will know how to handle Court-Ordered Assignment of Debt and the correct verbiage needed in the divorce settlement agreement or separation agreement.
When a borrower has an outstanding debt that was assigned...
Many times in a divorce situation, one of the parties may not be living in the marital home at the time of the divorce; however, is awarded the marital home through the divorce settlement agreement or perhaps one divorcing party is awarded an investment property that will now become their primary residence.
A borrower who is currently on title for the preceding 12 months does not have to also be living in the subject property and may qualify for a Limited Cash Out Refinance without a reduction in loan to value requirements as long as they can show:
This may open up an opportunity for divorcing homeowners who also own investment properties. When their intent is to occupy a previously held investment property post-divorce, they...
Divorcing Homeowners who are selling the marital home should understand the importance of Basis. The Basis of the property is usually the acquisition cost and may be an important number when calculating any capital gains on the sale. The cost is the amount paid in cash, debt obligations, other property, or services. In addition to the cost of the property, certain other fees and expenses become part of your cost basis.
Real Estate Taxes. When the marital home was purchased, if the buyer paid real estate taxes the seller owed on real property acquired and was never reimbursed by the seller, taxes paid may be treated as part of the Basis. This amount should not be deducted as taxes paid. If the seller paid real estate taxes on behalf of the buyer and was reimbursed, the amount is usually deducted as an expense in the year of the purchase and should not be included in the basis of the property. If the seller was not reimbursed, the amount paid by the seller must be reduced from the...