How Does Divorce Mortgage Planning Benefit Military Spouses?

According to data released by the Pentagon, the divorce rate among married military personnel has remained relatively stable over the past few years, fluctuating between 3% and 3.1% since 2014. Notably, the divorce rate among female troops is significantly higher than that among male troops, standing at 7% compared to 2.5%. Furthermore, the overall divorce rate for enlisted forces is 3.5%, which is higher than the 1.7% divorce rate for officers, irrespective of gender.

How Divorce Mortgage Planning Benefits Divorcing Military Spouses

Divorce mortgage planning is crucial for divorcing military spouses, especially when dealing with VA loans on the marital home. Working with a Certified Divorce Lending Professional (CDLP®) can help manage existing VA loans and ensure compliance with the Uniformed Services Former Spouses' Protection Act (USFSPA).

Understanding VA Loans in Divorce

VA loans offer significant benefits to eligible veterans, but it's important to note that VA financing eligibility is specific to the veteran or a qualified surviving spouse. Here’s what happens when the marital home, financed with a VA loan, is awarded to one spouse during a divorce:

Non-Veteran Spouse Awarded the Home and Refinancing:
- The non-veteran spouse will need to refinance the existing mortgage to remove the veteran spouse from the loan and pay their share of equity. However, the non-veteran spouse cannot obtain VA financing for this purpose.
Non-Veteran Spouse Awarded the Home Without Refinancing:
- The veteran spouse remains legally obligated for the loan even if the divorce settlement assigns payment responsibility to the non-veteran spouse. This obligation affects the veteran’s entitlement and may limit their ability to obtain another VA loan. However, if the veteran has sufficient second-tier entitlement remaining, they may secure a new primary home with VA financing while the original loan remains in effect.
Veteran Spouse Retains the Home:
- To remove the ex-spouse from the existing VA mortgage, the veteran spouse can:
  - Obtain a new Equity Buy-Out refinance with VA financing to pay the ex-spouse’s equity share.
  - Use an Interest Rate Reduction Refinance Loan (IRRRL) to remove the ex-spouse, provided there is at least a .5% interest rate improvement.
  - Seek a release of liability from the existing mortgage holder, allowing the veteran to retain the current mortgage terms.

The Role of the Uniformed Services Former Spouses' Protection Act (USFSPA)

The USFSPA (10 USC § 1408) allows state courts to treat military retired pay as property of both the member and spouse in a divorce and enables enforcement through the Department of Defense. The USFSPA includes provisions for:

Pension Division: State courts can distribute military retired pay to a spouse or former spouse, with direct payments allowed if the 10/10 Rule is met.
Payment Limits: Direct payment of pension division awards is capped at 50% of the member's disposable retired pay, potentially increasing to 65% if there are spousal or child support garnishment orders.
Child and Spousal Support: Provides a method for enforcing current and past-due child support and alimony.

For the recipient spouse to use support income as qualified income for mortgage financing, it must be consistently sourced and documented. The marital settlement agreement should clearly outline the support amount from each source to meet mortgage financing requirements. A CDLP® can provide the necessary guidance for clarity and documentation.

Working with a Certified Divorce Lending Professional (CDLP®)

A CDLP® specializes in working with divorcing homeowners, offering expertise in navigating the complexities of divorce-related mortgage issues. Here’s how a CDLP® can help:

Expert Guidance: Provides specialized advice tailored to the unique needs of divorcing military spouses.
Financial Stability: Helps manage mortgage payments and housing expenses post-divorce, ensuring long-term financial stability.
Compliance: Ensures all financial decisions comply with relevant laws and regulations, avoiding potential legal issues.
Comprehensive Support: Works closely with divorce attorneys, financial planners, and real estate agents to create a cohesive plan addressing all aspects of the divorce and financial situation.

Contact a CDLP® for Expert Advice

It is essential to work with an experienced mortgage professional specializing in divorcing clients. A Certified Divorce Lending Professional (CDLP®) can answer questions and provide excellent advice tailored to your situation. Please don’t hesitate to reach out for additional information.

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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.