Often in a divorce, we are more focused on curing the problem at hand, i.e., distributing the real estate and assets, that we forget there is life after divorce. The biggest challenge is the lack of knowledge, understanding, and preparedness of how the various pieces of the divorce puzzle fit together and indeed overlap. You don’t know what you don’t know, and not being prepared can cause more damage than good.
Here are three financial mistakes to avoid when negotiating the marital home during a divorce settlement.
Being Emotionally Attached to the House
Don’t be married to the house. The marital home often brings an emotionally charged debate to divorce negotiations, which can impair good decision-making. Often, divorcing spouses that are emotionally attached to the family home don’t realize that they can’t afford to keep it. Yet, they fight tooth and nail to keep it, sometimes at the expense of retirement planning. Instead, try separating the emotions from the asset and look at it from a financial or business perspective.
In addition, the home is a significant cash expense (e.g., mortgage payments, property taxes, repairs, and utilities). Let go of any emotional attachments you may have. During your divorce and settlement negotiations, your primary focus should always be on how to maximize your finances by making sure you’ll have enough cash for living expenses after your divorce.
Not Producing an Accurate Budget
Divorcing spouses usually underestimate living expenses when they produce their initial budget for temporary spousal support and later find that they cannot cover all of their bills. Use a financial professional to help you create an accurate and complete budget. Housing expenses add up to much more than the monthly mortgage payment. In addition, planning on the non-recurring costs of owning and maintaining the property is often overlooked. Lawn care, broken hot water heater, fence repair, leaky faucets – prepare for the unexpected.
Failing to Consider Your Eligibility for Mortgage Financing
Divorcing spouses who have previously had mortgage financing don’t understand the effect of divorce on obtaining future mortgage financing. Whether refinancing the current mortgage for an Equity Buy-Out or getting ready to purchase a new home, divorce will have an impact.
The spouse retaining the marital home may have qualifying concerns if support income is used for mortgage approval. Likewise, the spouse vacating the marital home to purchase a new property while still on the mortgage for the existing loan may have issues qualifying for a new mortgage.
Working with a Certified Divorce Lending Professional (CDLP™) and incorporating Divorce Mortgage Planning into the divorce settlement may help both spouses obtain new mortgage financing post-divorce.
The CDLP™ brings tremendous value to the divorce team during the settlement process because of their more vital perspective. Their understanding of the intersection of family law, tax law, real estate, and mortgage financing truly separates them from other mortgage professionals in the industry.
A successful divorce settlement results from putting the pieces of the puzzle together in such a manner that both divorcing spouses come out of the divorce whole. Therefore, each member of the professional divorce team should bring value and perspective that benefits the overall outcome and success.
Contact a CDLP™ today for a copy of the Divorcing your Mortgage Homeowner Workbook, a guide to credit, real estate, and mortgage financing after divorce. This workbook will help you organize, prepare, and understand your mortgage financing position, whether you need to refinance the marital home in an Equity Buy-Out situation or be ready to sell and purchase a new home post-divorce.
As a divorce mortgage planner, the CDLP™ can help divorcing homeowners make a more informed decision regarding their home equity solutions while helping the professional divorce team identify any potential conflicts between the divorce settlement, home equity solutions, and real property issues.
Divorce Mortgage Planning is a holistic approach to evaluating mortgage options in the context of the overall financial objectives as they relate to divorcing situations. Working directly with the divorce team, a CDLP™ understands the intersection of divorce, tax, real estate, and mortgage financing. The role of the CDLP™ is to help integrate the mortgage selected into the overall long and short-term financial and investment goals to help minimize taxes, minimize interest expense, and maximize cash flow.
Involving a Certified Divorce Lending Professional (CDLP™) early in the divorce settlement process can help the divorcing homeowners set the stage for successful mortgage financing in the future.
If you’d like to start the process of getting a home, come see us at the Tammi Lindley Team. We are Portland’s premier mortgage lenders, offering hundreds of mortgage products so you can pick the mortgage that matches your needs. Contact us today and start the process of owning your dream home.