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Divorce In Lender’s Market: Ten Simple Steps Toward (Re)Financing

Alexander Poulos,  |  March 16, 2017

When the love is gone and divorce proceedings are on, your future begins in the present economy.  Financing a new home or refinancing an existing one is a major concern.   But don’t be afraid.  You can do it.  And you can find someone to help you.  There’s no reason to go it alone.  I’ve represented hundreds of clients to know that bluer skies always rise above the mountains.

Mortgage lenders require detailed financial statements, proof of steady incomes, and sizeable down payments.   In a refinancing, chances are the lender appraisal won’t value your home as much as you think it’s worth.  And lenders will only lend against a percentage of your home’s appraised value.  Take time to prepare for your home financing or refinancing during your divorce to pass lender scrutiny and convince your spouse or a judge to accept your proposal as part of your overall plan to divide the marital assets.

Arizona law provides that community, joint, or commonly held property must be divided equitably, though not necessarily in kind.  This language requires a substantially equal split.  Above all, it mandates fairness.  A property division may be unfair, for example, if your spouse walks away with all of the cash and you can’t finance or refinance a home.

Ten easy steps will help you plan your home loan:

Step One. Identify your marital liquid assets, like cash in bank accounts and tax refunds.

Step Two. Identify and give a value estimate of your marital cash-convertible assets, like home equity, mutual funds, term-life insurance polices, and, possibly, major corporate stock and real estate investments.

Step Three. Identify and give a value estimate of your marital assets that you cannot or do not want to cash out. These may include cars (valued through Kelley Blue Book website at www.kbb.com), personal property, (furniture, furnishings, jewelry, paintings, tools), retirement funds, (pensions, 401ks, IRAs, and deferred compensation); self-employment businesses, time shares, closely-held corporate stock, and limited liability company and partnership interests.

Step Four. Identify your marital debts, like credit card balances, tax liabilities, and home mortgage balances and obtain your credit score and report from one or all of the credit reporting agencies.  Remember that the mortgage goes away if your home sells.  If you keep the marital home, expect to refinance to remove your spouse from the mortgage and pay his or her share of the equity.

Step Five. List the marital assets and debts between you and your spouse.  Allocate one-half of each of the liquid assets, the cash-convertible assets, and the debts. Allocate the marital assets that you cannot or do not want to cash out in an equal or substantially equal split. You can split retirement funds in any amount without taxes or penalties if you withdraw no money. Make sure you give yourself at least one-half of the liquid assets. If your spouse has greater earning power, you might take more cash.

Step Six. List your current income or income capacity and any separate property, income, and debts. This includes real estate, disability benefits, and student loans. Spousal and child support should be factored as well. Lender financial statements demand support information.

Step Seven. Calculate mortgage amortization schedules on the Internet to see what monthly payment you can afford.  Be sure to factor in taxes and insurance.

Step Eight. Contact lenders to see if you pre-qualify for a loan. There are numerous available lenders with Internet access.

Step Nine. Search for where you want and can afford to live. Your plan more likely will succeed if you can identify the home you want to buy. The U.S. Department of Housing and Urban Development (HUD) website at www.hud.gov is a helpful resource for home buyers.  Ask around for realtor referrals.  I’ve yet to run across one who isn’t willing to help.

Step Ten. Consult with a divorce attorney for advice on your proposed property allocation.  Asset waste or other issues, like tax rates and regulations, may suggest an adjustment.  Your lawyer can give you projected child support and spousal maintenance amounts.  He or she can refer you to a home or business appraiser, forensic accountant, tax practitioner, or certified divorce planner to address property division, business, income, and tax issues. You cannot finance or refinance a home, for example, if no one agrees you should receive your share of the cash.  Your lawyer can advocate your point.

These ten simple steps will help you finance a home, reduce your anxiety over the process, and show your spouse or a judge how your financing plan is a fair part of the overall division of property.  You’ll see those bluer skies if you look above the mountains.

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