We're Getting Divorced…Now What?
Breaking up is hard to do, and dividing up assets that have accumulated over the course of a marriage can be a tricky endeavor even during the most amicable of divorces. Though it’s obviously an emotional process, a marriage that ends in divorce requires careful consideration of the division of a couple’s assets and liabilities.
There are a wide range of assets to consider during divorce from the home and cars to bank accounts and stock options. Managing and dividing assets can be logistically complicated… And of course, when couples can’t see eye-to-eye, they may submit the property dispute to the state, at which point a judge or mediator may step in.
Before delving into the various options for a couple navigating their way through divorce, it’s important to understand the difference between separate and marital property. While these terms and definitions can vary by state, they typically follow the same basic principles across the nation.
Separate property, in general, refers to the assets the spouses obtained prior to wedding or after separating. Gifts and inheritances from third parties acquired during the marriage can also be considered separate, but only if they have not been commingled as a marital asset. In Wisconsin, property is considered marital unless and until a spouse can prove otherwise (it will then be awarded to that spouse alone).
Marital property includes property or income earned during the marriage. Homes, mortgages, debts, retirement funds, and more – depending on when they were acquired – can all fall into this category. Wisconsin courts strive to divide marital property evenly between spouses unless extenuating circumstances apply.
If you don’t plan on utilizing the court system during your divorce, a viable option for dividing assets would be to exchange them – one spouse gets the car, one gets the house, and so on until both spouses are satisfied. Whatever a couple decides to do, it’s important that they keep in mind the long-term financial impact of each decision.
Who gets the house?
Homes can oftentimes be the largest asset a married couple shares, making it one of the more difficult to be divided during divorce proceedings. When it comes to deciding who maintains ownership of the couple’s home, there are a few different possibilities: sell the home altogether, one spouse keeps the home, or they both keep the house (until a decision can be made).
Before any of those decisions can be made, however, it’s important to get an appraisal to determine the value of the home. Financial planner Mary Ballin of Mosaic Financial Partners suggests that each spouse get their own appraisal in order to protect themselves financially as it’s “unlikely the two appraisals would be inaccurate in the same way.”
Once the value of the home is agreed upon, the couple can determine their equity by subtracting what is still owed on the mortgage. Whatever money is left over after the mortgage has been paid off will be split equally among the spouses.
Sell the Home
When a divorcing couple decides to sell the house, they’re choosing the most clear-cut option of splitting up the asset. Make sure to divvy up responsibilities pertaining to the sale of the home-financial and otherwise- in writing ahead of time.
Once all the sale-related expenses are taken care of, and the mortgage debt and taxes are resolved, the couple can divvy up the remaining money evenly between the two. This allows the couple to move on without the financial baggage of a home to tangle them up.
One Spouse Keeps the Home
If one spouse intends to keep the home, there are a few factors that should be taken into consideration. Refinancing the current mortgage will allow one spouse to take over the asset and replace the old mortgage with a new loan. It’s important to keep in mind, however, that the singular spouse must now have the finances on their own to qualify for a loan that was once approved using joint income, credit, and assets.
Having two appraisal reports, as suggested earlier, can help determine the value and realistically distinguish if one spouse can afford to obtain the couple’s home. Refinancing the current mortgage means buying out the other spouse, so assess financials in a realistic manner during this process.
How The Process Works and What’s Needed
Though your marriage need not always be finalized by a court to proceed with a refinance, information pertaining to spousal and child support and division of liabilities is critical. Note, too, that any support payments made to the other party will be viewed as a debt, the same as a vehicle or student loan payment.
Refinancing to remove a spouse will require you to qualify based on income, credit scores and equity in the home. We’ll need pay stubs, W2s, tax returns and the Marital Settlement Agreement. Recognize, however, that we’ll usually need a minimum of six months’ history for support payments before it can be considered income for underwriting purposes.
Once you’ve been qualified on income and assets, we will obtain an appraisal to determine the current value of the home. The value of the home will determine eligibility to refinance and may also resolve the equity owed to the departing spouse, though some couples request a separate appraisal outside of the mortgage process to determine value.
At the closing of the refinance, the departing spouse will be required to sign a Quit Claim Deed to remove his/her name removed from the property and to protect the credit of both parties.
If the departing spouse failed to pay other debts, a lien could be placed on the home. However, while this action takes the departing spouse off the house’s title and leaves it in the other’s name only, it does nothing to remove their name from the existing mortgage until it is paid off by way of a sale or refinance.
A Third-Option: Joint Ownership
There’s never an ideal time for divorce, and sometimes selling a home or buying out the other spouse isn’t an option at the time. When couples owe more than the house is worth or can’t afford to move or buy the other out, maintaining ownership of the home can be a better financial decision in the long run. Ballin says that children also tend to be a large factor in maintaining joint ownership.
While this is can be a great temporary fix to the problem, ultimately one of the first two options – selling or buying out – will most likely come to fruition.
So what should be taken into consideration in any circumstance?
Make sure to agree in writing on your Marital Settlement. To establish a game plan and negotiate a Marital Settlement that works, consider discussing your mortgage situation with us by contacting one of our Loan Offers as one of your first steps.
Treat it like a pre-approval. Too often we hear from customers after they have already agreed on terms.
You will each also want to find a real estate agent who can perform an initial assessment of value on your home, regardless of whether you plan to sell or not.
As part of your meeting with us, we’ll review a copy of your credit report-to check your score and review other liabilities that may need to be split. Credit scores over the past five years have been increasingly important to determine eligibility but also to determine if additional costs will be incurred.
If you decide that one party will keep the house, the process should be no longer than any other refinance – in today’s market an estimated 45 days. Refinancing after a divorce could be the first step in helping you regain control of your life while also protecting yourself and your credit.