Order of Play: Strategy Leads, Tactics Follow
In any scenario—be it sports, business, or divorce—a strategy is essential to guide the team or party toward their desired outcome. Strategy, a plan of action to achieve a primary aim, always comes first. To effectively reach the desired end-game, various team players are required.
Divorce and Real Property: Creating a Strategic Plan
In divorce, each party may have a different vision of their end-game. When it comes to highly valued marital assets like real property, emotions can complicate matters. The marital home often holds more value due to its emotional significance.
Formulating a Strategy for Retaining or Selling the Marital Home
How do you create a strategy when one spouse wishes to retain the marital home, or when the marital home is sold, and both spouses need to purchase new primary residences? Divorce can complicate mortgage approval for both spouses moving forward.
Divorce Mortgage Planning combines strategies and solutions with the right tactics to execute once the divorce is finalized.
Scenario Example:
Mark and Sally plan to sell the marital home and each purchase a new one. Mark will pay Sally monthly spousal and child support. Sally will also receive a lump sum from various marital investment accounts and does not work outside the home.
- Mark should be able to purchase a new home immediately upon selling the marital home, given his support payments are counted as debt obligations.
- Sally, however, won't be able to purchase her new home for 3 to 6 months due to the receipt requirements of support income needed for mortgage approval.
Strategic Solution: Implementing Divorce Mortgage Planning with a Certified Divorce Lending Professional (CDLP®) can offer strategic solutions to help Sally utilize her lump-sum distribution and net proceeds from the sale to create additional qualified income, allowing her to purchase a home immediately following the sale.
Another Common Scenario:
Sally wishes to retain the marital home and will need to refinance the existing mortgage into her name while paying Mark his equity share. They have also agreed to pay joint marital debt and attorney fees from the home's equity.
Assuming there is 30% existing equity in the home with 15% as Mark's equity share, Sally may only access 10% of this equity when paying Mark and covering the debts and fees. As a result, she might not be able to execute the settlement agreement as agreed.
Strategic Solution: Consider increasing the equity buy-out amount and reassigning the debt and attorney fees to Mark. Another strategic solution allows Sally to access up to 25% of the existing 30% equity rather than only 10%.
Divorce Mortgage Planning: Beyond Simple Mortgage Qualification
Certified Divorce Lending Professionals have the expanded knowledge and vision to identify strategies and tactics, helping each divorcing homeowner reach their desired end-game.
"Nothing matters more in winning than getting the right people on the field. All the clever strategies and advanced technologies in the world are nowhere near as effective without great people to put them to work." – Jack Welch, Winning
The Bigger Picture: Divorce Mortgage Planning
The solution isn’t as simple as deciding who retains the property and who buys new property. The structure of spousal support may directly affect income for an equity buy-out. Details about the real property can impact the options available for mortgage financing. Verbiage in the marital settlement agreement can affect the vacating spouse's ability to purchase a new home.
Benefits of Incorporating Divorce Mortgage Planning:
- Improving Cash Flow and Retirement Income
- Identifying Strategic Financing Opportunities
- Mitigating Potential Capital Gains Taxes
- Protecting the Mortgage Interest Deduction
- Increasing Qualified Income Through Collaboration
How Are You Incorporating Divorce Mortgage Planning?
Divorce mortgage planning involves evaluating mortgage options in the context of the divorcing couple's overall financial objectives. By incorporating a Certified Divorce Lending Professional into the settlement process, both spouses and their families can achieve more positive outcomes.
Contact a Certified Divorce Lending Professional (CDLP®) to explore strategic solutions and ensure a smoother transition.
To find a professional Certified Divorce Lending Professional near you, visit www.divorcelendingassociation.com.
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. The information contained in this newsletter has been prepared by, or purchased from, an independent third party and is distributed for consumer education purposes.
Copyright 2023 | Divorce Lending Association, LLC
