By Mary Fetzer
Negotiating a divorce settlement can be
grueling. The attempt to equitably divide your assets can make an already
acrimonious situation even worse. Of particular concern is the battle over what
is generally a couple’s largest asset: the marital home. Is it even possible to
keep the house? Probably not, but some lenders are working on financial
products that might soon give divorcing couples more options.
As it stands, divvying up the
family home is likely to take one of two forms: turning the home over to one
spouse, or selling it. Sure, both exes could continue to live under the same
roof, but that’s usually impractical.
When there is a joint desire
to sell the house, each spouse is equally interested in unloading the property
quickly and maximizing the value so that the proceeds of the sale can be
applied to the divorce settlement. But what happens when one spouse wishes to
retain the home? In that case, the individual who wants to keep the home is
forced to buy out his/her partner, or take over a mortgage that often was based
on the combined income of both spouses.
If the spouse who wishes to
retain the home finds they can’t afford the payments, there’s little choice but
to put the house up for sale. Isn’t there anything lenders can do to help?
What about a divorce mortgage?
Lenders in the U.K. are
reportedly devising a “divorce mortgage,” which would enable one
partner to stay in the marital home by borrowing enough to buy out their
ex-spouse for a period of time. Unfortunately, this is not an option in
America.
“The ‘divorce mortgage’ does
not currently exist in the U.S.,” says certified divorce financial analyst
Aviva Pinto, director of Bronfman E.L. Rothschild in New York City. “If
one-half of a divorcing couple does not have enough funds to cover the mortgage
with existing funds, their salary, or spousal support, then the home will have
to be sold.”
The bridge loan option
Dallas divorce and family law
attorney Jeff Anderson of Orsinger, Nelson,
Downing & Andersonsays the closest thing to the divorce mortgage in the
United States is a bridge loan, which gives the buyer time to sell the marital
home and finish the divorce. Once the divorce is over and the marital home is
sold, the bridge loan is paid off or converted into a normal 15- or 30-year
term mortgage.
“This option is not available
to everyone,” says Anderson. “The buyer must qualify for the loan, just like
any other home purchase.”
And, he notes, if the
soon-to-be former spouse wants to keep the house they are in, then there is
little benefit from a bridge loan. In those cases, he says, “The existing
marital home is either awarded to them in the divorce with the existing loan or
they refinance it after (or sometimes during) the divorce.”
Refi or take over the existing payments
Refinancing may be the best
option for the spouse who wants to remain in the marital house, but timing is
important. “Most courts do not let either spouse make major purchases during a
divorce because the assets of the marriage should be kept inside the marital
estate and available for division to the extent possible,” says Anderson. “If
the parties agree and work that agreement into writing, then one of them can
purchase a house through the mortgage process.”
Should one-half of the
divorcing couple express interest in taking over the payments, there are hoops
to jump through and bankers to impress. “Lenders require a court order showing
the maintenance payments to ensure that a person can afford a mortgage,” says
Pinto. “Most banks will require a proof of six months of maintenance income to
offer new homes loans.”
Creative financing
Coming up with the funds
necessary to assume the mortgage may require some creativity on the part of the
spouse who wishes to remain, according to Carolyn Woodruff, principal of Woodruff Family Law in Greensboro, North
Carolina.
- Alimony and child support
can be counted as income for the purposes of mortgage lenders who are
assessing the borrower’s ability to qualify.
- Assets received in the
divorce, such as a 401K, may help the remaining spouse come up with money
to pay on the principal. “There are special tax rules for getting money
out of a 401K in a divorce without penalty for the non-participant
spouse,” says Woodruff.
- Obtaining a co-signer,
such as a parent or a sibling, may improve a borrower’s odds of being
approved for a loan refinance.
- Government programs, such
as Making Home
Affordable (MHA), are available for those needing help affording a home.
Unfortunately, says Woodruff,
if none of the above solutions help the spouse resolve the mortgage conundrum,
then the house will likely have to be sold. But if you’re determined to keep
the house and want to fully explore your options, a good divorce lawyer can help connect you
with more information.
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