Updated: Mar 8
Order of play: Strategy will always come first.
Strategy is a plan of action to achieve a primary or overall aim.
Whether it's football, hockey, business, or divorce, it doesn't matter – a strategy is needed to guide each team or party toward their desired end-game. To effectively reach the desired end-game, there are various team players required.
In divorce, each party may have their idea of what that end-game looks like; sometimes, it varies greatly, and sometimes there are issues where the end-game is the same. Take real property, for example – a highly valued marital asset. The marital home may have a higher value than other real property simply because of the emotional value attached.
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 will purchase new primary homes? The end-game may not be as easy to attain as you think. Divorce can throw a wrench into obtaining mortgage approval for both spouses moving forward.
Divorce Mortgage Planning combines strategies and solutions and has the right tactics to execute once the divorce is final.
Look at the following scenario:
Mark and Sally are planning to sell the marital home, each purchasing a new one. Mark will be paying Sally monthly spousal and child support. Sally will also receive a lump sum distribution 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.
On the other hand, Sally won't be able to purchase her new home for a minimum of 3 to 6 months due to the receipt requirements of support income needed for mortgage approval.
What strategies exist to utilize Sally's lump-sum distribution and net proceeds from the sale to create additional qualified income so Sally can purchase immediately following the sale? Implementing Divorce Mortgage Planning with a Certified Divorce Lending Professional (CDLP®) can yield many strategic solutions to help Sally.
Here is another common scenario in divorce:
Sally wishes to retain the marital home and will need to refinance the existing mortgage into her name while paying Mark his equity ownership share. They have also agreed that joint marital debt and attorney fees will be paid out of the equity in the home.
Assuming there is 30% existing equity in the home with 15% as Mark's equity share. Sally may only be able to access 10% of this equity when paying Mark his equity share plus debt and attorney fees. As a result, she will most likely not be able to execute the settlement agreement as agreed. A worth considering is to increase the equity buy-out amount and reassign the debt and attorney fees to Mark. Another divorce mortgage planning strategic solution that allows Sally the ability to access up to 25% of the existing 30% equity rather than only 10%.
Divorce Mortgage Planning is much more than simply qualifying a borrower for mortgage financing. Certified Divorce Lending Professionals have the expanded knowledge and vision to identify strategies and tactics helping each divorcing homeowner reach their desired end-game.
The solution isn’t as simple as who retains the property and who purchases new property. The structure of spousal support may directly affect income for an equity buy-out. Details about the real property may impact the options available for mortgage financing. Verbiage in the marital settlement agreement may affect the ability for the vacating spouse to purchase a new home. Incorporating divorce mortgage planning into the settlement process results in a more positive outcome for both spouses and their families. Divorce mortgage planning is the process of evaluating mortgage options in the context of the overall financial objectives of the divorcing couple.
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 incorporating Divorce Mortgage Planning into negotiating and settling your divorce cases where real property is involved? Divorce Mortgage Planning can help divorcing homeowners get from where they are now to where they want to be by exploring and evaluating their strategic opportunities.
Involve a CDLP® early in the settlement process for collaborative problem-solving, leading to better outcomes.
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—All Rights Divorce Lending Association.