by questful | Nov 24, 2024 | Financial, Uncategorized
Divorce often brings emotional and financial challenges that can feel overwhelming, especially when informal agreements exist between spouses. Regardless of any pre-existing arrangements, financial disclosures during divorce are vital for ensuring transparency and protecting both parties from future legal complications.
The Importance of Financial Disclosures
During divorce proceedings, both parties must provide a comprehensive overview of their financial situation, including:
- Income: Salaries, bonuses, and other income sources.
- Expenses: Living costs, taxes, and payroll deductions.
- Assets: Real estate, personal belongings, savings, retirement accounts, trusts, and business interests.
- Debts: Liabilities such as mortgages and credit card debts.
These disclosures create a complete financial picture, serving as the basis for fair asset division. Without them, one party may hide income or assets, leading to an unequal settlement. Additionally, disclosures help prevent future disputes by clarifying the financial implications of decisions made during the divorce process.
While some couples make informal agreements during their marriage, such as, “I won’t touch your trust fund,” these can conflict with legal considerations. Financial disclosures ensure that both parties have a clear understanding of their finances, preventing one side from being disadvantaged due to incomplete information.
Promoting Financial Transparency
By providing financial disclosures, each party gains a full understanding of the assets and liabilities involved, which reduces the likelihood of disputes post-divorce. When both spouses comprehend the financial landscape, there’s less chance of reopening the case post-divorce, due to oversights or new information obtained. If the disclosures are unclear, individuals can consult an attorney about potential grounds for revising decisions based on new information, which can lead to additional costs and stress.
For example, one spouse may agree to relinquish interest in a family trust but later reconsider after gaining a better understanding of the implications. Similarly, after consulting a financial expert, one spouse may realize they were unaware of liquidity issues that needed to be addressed moving forward.
The Role of Valuations
Attorneys and financial professionals often recommend independent valuations of significant assets, such as businesses or trusts, to ensure an accurate asset division based on current worth. These valuations can also clarify the financial implications of informal agreements. For instance, if one spouse initially declines interest in a business, a valuation might reveal a more appropriate value, prompting a reevaluation of their decision.
Involving extended family members can sometimes cause tension. A spouse may express no interest in a family trust but change their mind once they grasp the full financial picture, potentially creating friction if in-laws are resistant to sharing details or cooperating with the valuation.
In the long run, families often benefit from transparency, as it prevents disputes and protects both sides from future legal complications.
In rare cases, certain information may not need to be disclosed immediately, such as an anticipated bonus or promotion. Family business agreements should also be reviewed with an attorney to determine what needs to be disclosed and what can remain confidential.
Conclusion
Ultimately, financial disclosures are essential to the divorce process. They enhance transparency, protect against future disputes, and contribute to fair financial agreements. While informal agreements can complicate matters, formal disclosures, coupled with professional guidance, help avoid costly mistakes.
Financial professionals, such as Certified Divorce Financial Analysts, can assist with valuations and disclosures throughout the divorce process, ensuring you make informed and protected financial decisions.
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 | 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 | Mar 19, 2023 | Financial, Uncategorized
Going through a divorce can be an emotionally and financially stressful experience. Dividing assets and liabilities, including the family home, can be a complex and challenging process. This is where a divorce mortgage expert can play a crucial role in helping you navigate through the process.
A divorce mortgage expert is a specialist who understands the unique financial and legal aspects of divorce and can help you make informed decisions about your mortgage and housing options. Here are some reasons why it is important to start working with a divorce mortgage expert right away at the beginning of the divorce process:
Assessing Your Options
One of the key benefits of working with a divorce mortgage expert is that they can assess your financial situation and help you understand your options. For example, they can advise you on whether it makes more sense to sell the family home, refinance the mortgage, or stay in the home until a later date.
Financial Planning
A divorce mortgage expert can also help you develop a financial plan that considers your current and future needs. This includes calculating your monthly expenses, understanding the tax implications of selling the family home, and creating a budget that reflects your new financial reality.
Mitigating Financial Risks
A divorce mortgage expert can help you mitigate financial risks associated with the divorce process. For example, they can advise you on how to protect your credit score, avoid defaulting on your mortgage, and ensure your mortgage payments are made on time.
Legal Support
A divorce mortgage expert can work closely with your divorce lawyer to ensure that you are financially able to afford to keep or sell your home and what is needed for mortgage qualification.
Stress Reduction
Divorce can be an incredibly stressful experience. Working with a divorce mortgage expert can help reduce some of that stress by providing clarity and guidance on your financial options. They can also help you develop a plan for the future that gives you a sense of control and direction.
In conclusion, working with a divorce mortgage expert can provide many benefits and help you make informed decisions about your mortgage and housing options. If you are going through a divorce, it is important to start working with a divorce mortgage expert right away at the beginning of the divorce process to ensure that you receive the support and guidance you need to navigate this challenging time.
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 | Oct 9, 2021 | Financial, Uncategorized
Over the course of the last few years, the divorce rate in the United States has been declining exponentially. Data fetched from Statista indicates that the divorce rate in the United States stood at about 2.7 per 1,000 of the overall population. Despite this declining number, the US divorce rate is one of the highest worldwide. And if you are going through the same, you may not be in the right emotional state right now.
And let me take some time out and tell you that it’s okay. I know you are strong – we all are. And if you feel frustrated, you can always reach out to us and have a heart-to-heart conversation with one of our experts. That’s because we care.
And if you both own a home or real estate property together yet are getting divorced, chances are that you may be looking forward to co-own it or buy it out. Or maybe you are planning to sell it to the highest bidder.
You may have a world full of questions. And trust me on this one – you’re not alone. Just like you, divorcees find themselves all juggled up and confused – finding it extremely hard to understand what to do with their real estate property. That’s what we’re here to help you with.
In this blog post, I’ve listed down the 6 most common questions couples going through a divorce ask regarding their real estate property.
So – without waiting anymore – let’s dive straight into these.
What are the Marital & Non-Marital Assets?
In a marriage, the assets are classified into:
- Marital Assets: These involve income, debts, assets that both you and your partner accumulated when you were married. Some other examples include investment accounts, pension, retirement funds, car loans, credit card bills, mortgages, and more. These will be divided between both spouses.
- Non-Marital Assets: These involve the assets acquired by either of the spouses both before the marriage and after the separation. These include your pre-marital debts, property as well as other assets – anything you can think of. Also, inherited properties and gifts are also a part of non-marital assets – so you don’t have to worry about your spouse asking you for their share of the house you inherited once.
Should I Keep or Sell My House?
I know – it might seem like a big decision – and it obviously is.
You may have spent years in your house. All those happy moments with your children and now out of nowhere you’re expected to sell it out. As much as you’d want to keep it, chances are that you don’t have the funds to buy out your spouse’s share of the equity. Or maybe you are not financially fit to pay your home mortgage all by yourself.
In a divorce, emotions are high and if it’s a high-conflict one – both spouses may often find themselves in disagreement.
We’d advise you to sell your house if:
- You can’t afford the monthly mortgage payments all by yourself (in case there is an existing mortgage)
- You can’t afford to buy your spouse’s share of the equity.
- You find it too hard to live in the house after the divorce
And in either of the following cases, we’d advise you to keep your house (if it’s a good option):
- You have kid(s).
- You have strong memories and emotional ties associated with your home.
While there’s no concrete answer for it – the decision to sell your home or not depends on your financial situation, relation with your spouse, emotional state, and much more.
If you are planning to keep your house, ask yourself:
- Does it make sense (emotionally and financially) to keep the house?
- How long are you planning to live in the house after you keep it?
- Can you pay the mortgage all by yourself?
- How much are you willing to go through to keep it?
Should I Consider Buying Out My Spouse’s Share of Equity?
Yes – you can always buy out your spouse’s share of the equity. But it doesn’t always make sense. Following are some of the reasons you may want to keep the house:
- You have children
- You have emotional ties as well as memories associated with your home
- You are financially stable.
- The market conditions aren’t ideal right now.
- You badly want to keep your house.
Whether you want to keep the house or not, it doesn’t matter as you need to make sure that if you can financially afford to buy it out. Both the spouses may have a mortgage amount together. And chances are that neither of you may qualify to take over the mortgage all by yourself.
But if you do, you may have to refinance the mortgage in your name. And getting that done isn’t cheap. So, if you are planning to keep your house, you need to make sure that you have the money to buy out your spouse’s share of equity, refinance the mortgage and deal with all the additional costs.
What’ll Happen to My Mortgage After Divorce?
Usually in a divorce, one of the following scenarios plays out:
- Both of you agree to sell the house and pay off the mortgage – and after paying it off, both the parties collect their share of net proceeds.
- One spouse decides to keep the house by simply buying out the other spouse’s share of equity and refinancing the mortgage under their name.
However, as we mentioned above, if you are planning to buy out your spouse’s share of equity, you need to be financially stable to take over and at the same time have a good credit score to qualify for a new loan.
If the divorcing couple is underwater on their house, then the process may get even more complicated.
So, it’s advisable to talk with a real estate expert and a divorce lawyer to sort it out.
Should I Involve My Kids in This Mess?
Divorces can be hard. And they are the worst for the children. While both the spouses should keep their fights or disagreements to themselves, it’s often advisable to keep your kids in the loop.
After all, if you are planning to sell the house, they may have to move to a completely new place. You need to make them feel comfortable. Watching their parents separate is a big step for them. But you need to keep them in the loop and let them know what both of you are planning ahead.
Some questions they may have include:
- Will both (mom and dad) be living in the same neighborhood?
- Where will our dog live?
- Will we be moving to a new city?
- Will we be attending the same school?
- I don’t want to live with my brother/sister – what’s the plan?
I know that divorce is emotionally traumatizing. But it’s even scarier for children. And if you don’t keep them in the loop or inform them about your decisions, they will always find themselves scared. And they may also start feeling some negative emotions like anxiety, stress, depression – which you’d not want them to feel.
Will My Divorce Settle? Or Will We Be Going to Trial?
Over 90% of the overall divorces settle before trial. Usually, this involves one of the spouses agreeing to the other spouse’s settlement offer or via mediation.
However, there are a few cases where both the spouses can’t agree with each other’s decisions. If both of you can’t agree on how to divide your assets – you can go to trial where the court will help you out with the negotiations and split all of your marital assets the right way.
Depending on where you reside, asset distribution may vary.
If you live in a community property state, all the marital assets will be divided 50-50. This doesn’t involve non-marital assets, gifts, or inherited assets.
On the other hand, if you reside in equitable distribution state, then the assets will be divided fairly; however, they are not usually split 50-50 among both the spouses.
Some of the factors taken into consideration by the courts while determining the percentage are:
- Income of both the spouses
- Earning potential of each spouse
- Value of the spouse raising the kids or staying home.
If you are choosing to settle before going to trial, it’s critical to have a well-experienced divorce attorney by your side with experience in real estate and appraisal cases. And even if both of you can’t seem to agree on who gets to keep the house, an experienced attorney will chart a course and guide you thoroughly to help you gain insights into the process and your state’s laws.
Hit Us Up for Further Questions!
And these are just a few of the questions thrown our way on a regular basis. But these are pretty generic ones. Different couples often find themselves under different conditions. And as a result, you may have completely different questions.
Don’t let those questions eat you up. Feel free to reach out to one of our experts and we’d love nothing more than to help you.
Damon Chavez, Realtor
10135 West San Juan Way, #100
Littleton, CO 80127
Phone: (303) 649-6767
damon@coloradohousefinders.com
www.coloradohousefinders.com
