Not a pretty topic, but couples do separate and divorce. Many parties are involved, sides taken, opinions rendered and judgments made with reflex-like action. This article is neither about judgment nor philosophical and religious beliefs on the topic. The fact is that divorce exists and happens, family dynamics change and one home now becomes two. Those going through divorce are many times left in circumstances they never thought they would be in, and are simply not prepared to deal with their new situation. Many times a person may never see divorce coming and wind up blindsided when divorce rears its head into their relationship. How can you really prepare for a circumstance such as divorce? I mean preparing might lead to a self-fulfilling prophesy, and a constant state of paranoia. Yes, there are those who have financial pre-nupitals, which is as prepared as you can get, but many couples do not.
I want to offer something practical to keep in mind for those who are in the process of divorcing. I am not rendering legal advice but some practical things to keep in mind when it comes to working out housing. If you both own the home you live in, one or both of you may decide to rent afterward, or one of you may decide to buy out the other, or both of you may decide to sell the home and each buy a new home. It’s important to keep in mind that lenders look at credit, liquid assets and income, so it will be important to pre-structure your finances, so you don’t find out after all the paperwork that you can’t accomplish what you wanted to and exacerbate an already stressful situation.
My suggestions are as follows:
1. Credit—Even though there may be anger and hurt and arguments, it will be important to stay on the same page and pay all bills on time, if at all possible. Fighting over who pays what may be a legitimate thing to discuss, but until there is a resolution, try as best as possible to maintain your current credit rating and scores by paying on time. Should you decide to purchase a home, this piece of advice will be a lifesaver.
2. Income—Many couples have dual incomes, and if the earnings are enough to qualify for a mortgage or pay the rent then you have some good options. If one spouse is not currently working, then it may pay to discuss the game plan after divorce; e.g., who will rent, who will buy a new home and how can you both work together to accommodate each other, especially if children are involved? It may be that alimony and child support have to be tweaked or that one spouse co-signs, or one stays in the house and pays the existing mortgage. If one spouse is not working it is important to note what lenders are looking for in qualifying income.
3. Assets—Liquidity is important (not a shocker). You will need money for a down payment to buy a new home and reserves. It’s a bit easier to divide pure liquid assets such as savings and checking accounts and stocks and bonds. When it comes to selling a home you have to consider the current real estate market and the need for cash at the same time. If there is an urgent need to separate and move on, you may be forced to sell and take less than you can get if you were able to wait. It may be more prudent to discuss taking an equity line before listing your home so that you have access to cash without having to force a sale at a below-market price.
No one wants or expects to be in a situation as described above, and hopefully you can put this information on the shelf, but if you are currently involved in a divorce, I hope this information allows you to mediate for fewer problems and stress in your near future.
Carl Guzman, NMLS# 65291, CPA, is the founder and President of Greenback Capital Mortgage Corp. He is a residential financing expert and a deal maker with over 25 years’ experience. Carl and his team will help you get the best mortgage financing for your situation and his advice will save you thousands. www.greenbackcapital.com [email protected]
By Carl Guzman
