By Wanda Norge
This topic is always tough. Breaking down the numbers, for every 10 people married, four of them will be getting divorced within the first seven years of wedded bliss.
Divorcing clients need guidance for their pre-, during and post-divorce housing situations since there can be impacts if they make the wrong decision or get the wrong advice.
When there is a marital home (or other real estate) involved in a divorce, the question that comes up is, “What do we do with the marital home?” One person may want to buy out the other person and retain the home. Or perhaps the marital home will be sold with the proceeds and costs split by each party.
Be careful about the timing. For example, if a property is purchased while “separated,” but not divorced, the other spouse could petition for half of that property later including any value increases that may have occurred since purchase. Since the couple was not legally divorced at the time when the purchase occurred, the real estate is still “marital property.” That can come into play as an asset that needs to be “split” in order to give the other spouse his or her share of the equity.
Many lenders will not do a new mortgage if there is just a “separation” agreement. They can require the divorce to be finalized first. This protects the lender and all parties so there is no question about any changes that could occur when a divorce has not been finalized. Those lenders that do allow separation agreements will require them to be legally recorded.
Guidelines vary with different loan types (FHA, conventional, etc.) in terms of how long child support, alimony or maintenance payments must be received in order to use that income to qualify for a loan, along with how long it must continue.
It is important to include a lending professional that can provide accurate information to the attorney in regards to the wording that lenders are looking for in the divorce decree or separation agreements regarding these topics.
There are also potential legal and tax implications involved on how to handle mortgage-related tax deductions or how to handle 401(k) distributions. The administrator for the 401(k) plan has to approve the Qualified Domestic Relations Order (QDRO) in order for the person to take advantage of a tax law that allows withdrawal of retirement money without paying a 10 percent penalty.
I often get calls from Realtors or clients that say they are getting conflicting information about the mortgage rules when in a divorce situation. Or worse – they have already been given bad advice and a contract or refinance is now falling through. Let me know if I can assist with your divorce lending questions.
Wanda Norge is a Mortgage Consultant and Certified Divorce Lending Professional (CDLP) with Equilane Lending, LLC (NMLS: 387869), lending for 14 years. Contact her at 303-419-6568, firstname.lastname@example.org or www.wandanorge.com. NMLS:280102, MB:100018754