How Divorce Mortgage Planning Benefits Military Spouses

Divorce rates among military personnel have remained relatively steady over the past few years, fluctuating between 3% and 3.1% since 2014. However, divorce is significantly higher among female troops (7%) compared to male troops (2.5%). Additionally, enlisted forces experience a higher divorce rate (3.5%) compared to officers (1.7%), regardless of gender.

How Divorce Mortgage Planning Benefits Divorcing Military Spouses

A Certified Divorce Lending Professional (CDLP®) plays a critical role in helping divorcing military spouses manage their real estate and mortgage financing. Here’s how:

Managing VA Loans During Divorce

VA loans offer significant benefits to eligible veterans and their surviving spouses. However, eligibility for VA financing is strictly tied to the veteran. So, what happens when a marital home financed with a VA loan is awarded to one spouse during a divorce?

Non-Veteran Spouse Awarded the Marital Home:

Refinancing: If the non-veteran spouse needs to refinance to pay the former spouse's share of equity, they cannot obtain VA financing.
Existing Mortgage: If the non-veteran spouse retains the home without refinancing, the veteran spouse remains legally obligated for the loan. The divorce settlement may assign mortgage payments to the non-veteran spouse, but the veteran's obligation to the lender remains unchanged. The veteran's entitlement tied to the current VA loan limits their ability to secure another VA loan, unless they have sufficient second-tier entitlement remaining.

Veteran Spouse Retains the Marital Home:

Equity Buy-Out Refinance: The veteran can refinance with a new VA loan to pay the former spouse's equity share.
Interest Rate Reduction Refinance Loan (IRRRL): This option can remove the former spouse from the mortgage if there is at least a 0.5% interest rate improvement.
Release of Liability: The veteran may request a release of liability from the mortgage holder, retaining current terms and investment.

Uniformed Services Former Spouses' Protection Act (USFSPA)

The USFSPA (10 USC § 1408) addresses two main points:

Division of Military Retired Pay: State courts can distribute military retired pay to a spouse or former spouse.
Enforcement of Orders: The Department of Defense can enforce these orders if the 10/10 Rule is met, allowing direct payment of up to 50% of the member’s disposable retired pay.

Importance of Sourcing and Documenting Income

For the recipient spouse to use support income as qualified income for mortgage financing, they must document receipt to establish consistency and stability. The marital settlement agreement should clearly outline the total support amount from each source to meet mortgage requirements. A CDLP® can provide guidance to ensure a smooth process.

Benefits of Working with a CDLP®

Expert Guidance: CDLP®s are trained in the financial and legal complexities of divorce and mortgage planning.
Informed Decisions: They help divorcing spouses make strategic decisions regarding real estate and mortgages.
Financial Stability: Proper planning helps manage mortgage payments and housing expenses post-divorce.
Avoid Common Pitfalls: CDLP®s help avoid mistakes that can impact credit and financial stability.
Collaborative Approach: CDLP®s work with divorce attorneys, financial planners, and real estate agents to create cohesive plans.

Conclusion

Divorce mortgage planning with a Certified Divorce Lending Professional (CDLP®) is essential for military spouses navigating the financial complexities of divorce. A CDLP® provides the expertise and support needed to manage real estate and mortgage decisions, ensuring financial stability and peace of mind.

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Disclaimer: This information is for informational purposes only and not intended for legal or tax advice. Contact an attorney or tax professional for legal and tax advice. Interest rates and fees are estimates and subject to market changes. This is not a commitment to lend. Rates change daily—call for current quotations.