by questful | Mar 11, 2024 | Legal
Every divorce carries its own unique circumstances. If you’re self-employed, your divorce will have some additional considerations.
Child Support
Self-employed individuals must still pay child support. In Colorado, child support is calculated on a worksheet, which considers each parent’s gross income and the number of overnights with each parent.
For self-employed parents, “gross income” isn’t simply the business’s gross earnings. Instead, the Court uses the gross income of the business minus reasonable business expenses. This is where things can get tricky, especially if the owner is paying personal expenses from the business account.
If a parent is not working to his or her full potential while self-employed, income may be imputed to the parent, based on what the parent could be making.
When income is not consistent, you can often average the past several years to determine a reasonable estimate of income.
Property Division
If you started the business during the marriage, your interest in the business is marital property. Even if you started the business before the marriage, if it increased in value during the marriage, that increase is also marital property. In both scenarios, the business must be valued. This requires an expert to value the business.
When dividing the business, the Court will consider the following questions:
– When was the business established? If it was started before the marriage, then the business interest is the owner’s separate property.
– Has the business value increased during the marriage? If yes, then the increase is marital property, and the increase must be accounted for in the property division.
– What were each spouse’s roles in the business and how much did each party invest in the business?
– What’s the business’s overall value?
While not advised, the Parties can agree to continue joint business operations after divorce. If the case goes to court, the judge must award the business to one party or another, and cannot allow them to continue joint ownership after the divorce.
Self-employment and business ownership can be complicated, and require expert advice, both from financial and legal professionals. The professionals at South Denver Collaborative Divorce are here to help!
Katelyn B. Parker, Esq
8400 East Prentice Ave., Suite 1500
Greenwood Village, CO 80111
Phone: (720) 213-6858
katelyn@oneaccord.legal
www.oneaccord.legal
by questful | Dec 10, 2023 | Financial, Uncategorized
Divorce involves complex decisions regarding the marital home and real property. Agreeing on how to handle the mortgage and the family home can be a challenging aspect of this process. The options available to divorcing homeowners depend on several factors, including how the property was financed and its current ownership status. Additionally, considerations like property disposition, equity in the property, and the income sources available to the spouse seeking a mortgage come into play. In this situation, it’s important to work with a loan officer who specializes in divorce lending.
Common mistakes often arise during divorce when working with mortgage professionals who may not fully understand the unique implications of divorce and the opportunities to assist divorcing homeowners with their mortgage financing. In this blog post, we’ll discuss two of the most common mistakes made and offer solutions to help divorcing couples navigate this financial aspect more effectively.
Mistake #1: Mismanaging Home Equity Distribution
When a divorcing couple has equity in their home, the spouse retaining the house often faces the dilemma of how to pay their ex-spouse their rightful share. One common misconception is that the solution lies in a cash-out refinance. This approach typically involves initiating a cash-out refinance to provide a portion of the money owed to the exiting spouse, followed by obtaining a home equity loan to cover the remaining amount.
However, there’s a more advantageous solution allowed by mortgage underwriting guidelines. By including specific language in the marital settlement agreement, the refinancing can be classified as an equity buyout rate and term refinance. The benefit of this approach is twofold: it provides access to more home equity, which is usually limited to 80% loan-to-value in cash-out refinances, and it often comes with better financing terms. It’s important to note that there may be title seasoning requirements for the borrowing spouse, so consult with a mortgage professional well-versed in divorce-related financing.
Mistake #2: Leaving an Ex-Spouse’s Name on the Existing Mortgage
Failing to remove the vacating spouse’s name from the existing mortgage can have significant consequences. It affects the ability of the non-resident spouse to qualify for future mortgage financing because the existing mortgage payment is counted in their debt-to-income ratio if they remain on the current mortgage.
To mitigate this, the marital settlement agreement should explicitly assign responsibility for paying the existing debt. This assignment classifies the debt as a court-ordered assignment, which, in the eyes of mortgage financing requirements, may allow the debt to be excluded from the borrower’s debt-to-income ratio. This, in turn, can help them qualify for a new mortgage in their name only, while still remaining on the existing mortgage for the marital home.
Divorce is undoubtedly a challenging process, and the financial implications of decisions made during this time can be long-lasting. Avoiding common mortgage mistakes during divorce is crucial for both parties’ financial stability. By understanding how to manage home equity distribution effectively and ensuring that mortgage responsibilities are clearly outlined in the marital settlement agreement, divorcing couples can navigate the mortgage aspect of their divorce more smoothly and secure a brighter financial future for themselves.
Jan Parsons Smith
Production Manager, NMLS#442729
jparsons@primelending.com
720-308-1320
www.JanParsonsHomeLoans.com
5613 DTC Parkway, Suite 750
Greenwood Village, CO 80111
by questful | Dec 10, 2023 | Financial, Uncategorized
Unlike most the traditional separation process, the collaborative approach with divorce includes a financial neutral that usually holds the designation of Certified Divorce Financial Analyst (CDFA).
The support that the financial neutral provides is helpful with identifying the most appropriate financial settlement option for both spouses by utilizing the flexibility with the Colorado divorce statutes in the areas of property division, spousal maintenance, and child support.
Once detailed financial information is collected, the financial neutral then builds a forward-looking living expense budget and the marital balance sheet (inventory of all assets/liabilities). This information is then used to model and evaluate different property division (asset/liabilities) and spousal maintenance scenarios to understand the impact to each spouse’s current and future cash flow and net worth.
Often there exists projected disparate financial futures post decree, allowing the financial neutral and the collaborative team to negotiate adjustments to property division, spousal maintenance, and other financial areas such as child support to best meet each spouse’s financial goals.
Patrick Janssen
Patrick Janssen MBA, CDFA, CRPC®, APMA®
Patrick@aspirewmg.com
office: 720.805.0051 | mobile: 720.314.9774
5251 DTC Parkway, Suite 1045 | Greenwood Village, CO 80111
www.aspirewmg.com
www.divorcefs.net
by questful | Dec 10, 2023 | Financial, Uncategorized
Divorce is a tumultuous life event, and when intertwined with financial decisions such as refinancing, it can add a layer of intricacy to an already complex situation. Typically, individuals refinance their homes to secure lower interest rates and reduce costs, but there are circumstances in which higher interest rates may be a strategic choice during a divorce. In this article, we’ll explore the potential benefits and drawbacks of opting for refinancing with higher interest rates and underline the necessity of consulting with financial professionals during these uncertain times.
The Advantages of Refinancing with Higher Interest Rates
Refinancing with higher interest rates may seem counterintuitive, but there are situations where this approach can be advantageous.
- Immediate Financial Relief: If you find yourself grappling with exorbitant monthly mortgage or loan payments amid a divorce, refinancing at a higher interest rate, even with a larger loan, can offer much-needed respite in monthly payments. This can be especially valuable if you require a lump sum of cash for various divorce-related expenses, including attorney fees or the equitable division of assets.
- Short-Term Requirements: If you anticipate selling your property or paying off the loan within a relatively short timeframe, opting for a higher interest rate may not significantly impact your overall interest payments. Many individuals choose to refinance at higher rates with the expectation of refinancing again when interest rates decrease or before putting their home on the market for sale.
- Tax Benefits: Historically low-interest rates and tax changes (increased standard deductions) have caused many individuals to not qualify for the mortgage interest deduction through itemization. However, higher interest rates could allow you to itemize this expense, potentially mitigating the actual impact of the higher interest rate. Consulting with a financial professional can help determine the after-tax or ‘effective’ interest rate.
- Divorce Benefits: Refinancing can safeguard your financial independence in a divorce by separating your finances from your ex-spouse. Maintaining a joint mortgage post-divorce can entail credit risks and complicate estate planning. It’s generally recommended to untangle financial ties as much as possible for a smoother transition and a healthier co-parenting relationship. For instance, in Colorado, joint rights of survivorship will automatically cease after a divorce, transferring ownership to ‘tenancy in common.’ If the non-resident spouse remarries and passes away while still co-owning the property, the ex-spouse and the new spouse would share ownership of the property.
- Income Tax Bracket Consideration: Higher interest rate refinancing may be advantageous for individuals in higher tax brackets where tax deductions hold more value. Conversely, it may not be as beneficial for those in lower tax brackets or those primarily receiving tax-free alimony and child support.
- Lump Sum Maintenance Payout Could Become Deductible Again: A home with significant equity could provide a lump sum maintenance payout to the non-resident spouse. The resident spouse paying spousal support is essentially trading in a non-deductible monthly spousal support payment (spousal support became a non-taxable transfer due to the TCJA in 2019) for a larger tax deductible mortgage payment that pays out the receiving spouse with a lump sum cash payment.
The Drawbacks of Refinancing with Higher Interest Rates
Despite the potential advantages, there are several drawbacks to consider when refinancing at higher interest rates.
- Long-Term Costs: The most glaring downside of refinancing at a higher interest rate is the increased interest payments over the life of the loan. Although monthly payments could be lower (if extending the term of the loan), the total interest paid throughout the loan’s duration can be considerably higher.
- Qualification Challenges: Higher interest rates can pose challenges for individuals seeking to qualify for a new home loan due to factors like income limitations, debt burdens, or loan-to-value ratios. Given the complexities of divorce and shifting financial circumstances, meeting the criteria for a higher interest rate can be a formidable challenge.
- Reduced Home Equity: Refinancing at a higher interest rate results in slower home equity growth compared to a lower interest rate, potentially affecting long-term financial stability and the ability to tap into home equity for other purposes.
- Credit Impact: Difficulties in making on-time payments due to increased monthly obligations from a higher interest rate could negatively impact your financial situation should unplanned financial events occur such as job loss, disability, etc.
While refinancing with higher interest rates is not the conventional choice due to the potential for increased long-term costs and reduced financial benefits, it’s crucial to evaluate your unique financial situation and objectives thoroughly, especially during a divorce when asset ownership becomes more intricate. Seeking guidance from a financial professional can help you model various scenarios, taking into account variables such as tax benefits, financial goals, and budget constraints, empowering you to make well-informed decisions about refinancing. Don’t hesitate to reach out to us for assistance during this challenging phase.
Amy Mahlen Melander
Amy Mahlen Melander, CFP®, CDFA®
A.M. Financial
Divorce Financial Services
Phone: (303) 875-8730
7887 E. Belleview Ave., Suite 1100
Denver, CO 80111
www.amf-divorce.com
amahlen@mahlenfinancial.com
by questful | Oct 15, 2023 | Legal, Uncategorized
If there are concerns about a parent’s ability to abstain from alcohol during their parenting time, there are different options for addressing those concerns in real-time.
The first step is determining whether a parent’s alcohol use rises to the level of necessitating monitoring. In determining whether monitoring is necessary, although not an exhaustive list, the following factors (or a combination thereof) may suggest that real-time alcohol monitoring is appropriate:
- History of DUI/DWAI.
- Consuming alcohol every night.
- History of alcohol abuse but not currently enrolled in treatment (AA, sobriety counseling, outpatient treatment, etc.).
- Hiding drinking from family members.
- Consuming hard liquor directly from the container.
- May go days without contact with friends or family members.
Striking a balance between continued contact with the children and ensuring their safety is critical if a parent has an unmanaged alcohol abuse issue. There are 3 ways to actively monitor alcohol use in real-time during parenting time: a handheld or portable breathalyzer, Soberlink and BACTrack.
Portable Breathalyzer:
Handheld breathalyzers purchased from Amazon, Walgreens, etc. are the least reliable devices and have significant limitations. There are multiple products on the market that may not be accurate, so make sure you research the device and verify that it has been certified. Typically, a parent will blow into the device prior to the commencement of parenting time and at drop-off, and show the other parent the results in-person and in real-time. As a breathalyzer purchased from Amazon has no facial recognition features, if additional testing results are shared during parenting time via photos, they cannot be considered reliable. Although intrusive, consider Facetiming with the testing parent to visually verify the test and results.
Soberlink/BACTrack:
Soberlink and BACTrack are handheld breathalyzers that use either facial recognition software (Soberlink) or video (BACTrack), and send the results to the other parent in real-time. Soberlink is a standalone breathalyzer that captures an image of the user’s face with built in cell service to transmit the results in real-time to the other parent via text and e-mail (this option must be selected in the subscription package otherwise weekly e-mailed reports are the default). Soberlink is considered the Gold Standard for active monitoring of alcohol use, the user is typically assigned a case manager, and tests are usually scheduled every 4-6 hours during waking hours; however, the cost of the device and the monthly subscription can be a concern.
BACTrack is a handheld breathalyzer without built in cell service that uploads results via Bluetooth to the user’s cell phone. BACTrack takes a video of the user’s test that is then shared with the other parent. While BACTrack has been approved for use by courts and is significantly cheaper than Soberlink, because the device has to connect to a cell phone and tech support is an additional cost, user error can interfere with timely uploading results.
Secondary Testing:
No monitoring protocol is foolproof. As all three active monitoring options only address sobriety during waking hours, often Soberlink or BACTrack are combined with random, weekly Urinalysis (UA) testing or monthly PEth testing (bloodspot testing) to determine if alcohol has been consumed overnight. UA testing typically has a 24-48 hour look back window based on how fast the individual metabolizes alcohol. PEth testing utilizes markers in the blood to determine if a parent has binged alcohol in the last 28 days, but cannot pinpoint when alcohol consumption occurred within the 28-day window or the exact quantity of alcohol consumed.
Woody Law Firm, LLC
James M. Cordes, Esq.
jcordes@woodylawllc.com
Woody Law Firm, LLC
140 E. 19th Ave, Suite 600
Denver, CO 80203
303-968-1711
