For most people, their home is the most valuable asset. If you are going through a divorce, it is critical that you carefully consider your options related to your home. This checklist can help you and your attorney determine your best options. Apply these questions to any properties that you and your spouse own.
Property Related Financial Disclosure
These first few items should be part of the financial disclosure process with your soon-to-be ex and your attorneys.
- Who is on the title? If you do not know, look through the closing documents from the purchase or look up the property in your city or county tax records (you can usually do this online). Still not sure? Contact a title company for help.
- What is the property worth? There are several ways to determine the worth of the property, but the best is to get an appraisal from a professional appraiser. An appraisal can cost $300 to $1000+, but is worth every penny in terms of minimizing the back-and-forth between you, your spouse and your attorneys.
- What is the current mortgage? Who is on the loan? Even if you are not on the loan, it is important to understand the original and current loan balance, the interest rate, and the term of the loan. If possible, obtain a copy of the latest mortgage statement and a copy of your closing documents from the purchase or refinance of the home.
- How much is your home insurance? Obtain a copy of your homeowner’s insurance statement and policy.
- How much are your annual property taxes? Obtain a copy of your tax bill. If you are unsure, you may look this up in your city or county tax records (you can usually do this online).
- If you have an HOA, what are the HOA fees?
- Obtain a copy of your credit report. Everyone is entitled to get one free credit report from each of the three credit reporting agencies each year. Credit reports are available at annualcreditreport.com. I recommend obtaining one report from one agency every 3-4 months. Alternatively, you may pay for copies of your report from the agencies (i.e. www.experian.com). If you purchase your reports, then you may also obtain a copy of your credit score; if you do so, make sure you are getting your FICO score, which is what lenders use to determine credit worthiness for a loan. When you review your credit report, make sure that the information is accurate. If you see something you don’t recognize, contact the lender and find out more.
Deciding What to do with Your Property
There are really only 3 options when it comes decisions related to property you own with your spouse: sell it, one person “buys out” the other, or continue to co-own the property. (Learn more about these options here.) To help you determine which option is best, complete these checklist items.
- Do either of you want to keep the property? Why? There are many reasons that either you or your spouse may want to keep the home, such as wanting to keep a stable home for your children, keeping your children in the same school, remaining close to a support network, family history associated with the property, difficulties associated with moving, etc. Think through these reasons as rationally as possible.
- Can either of you afford the property on your own? Complete a budget or expense worksheet to help you make sure. Include all expenses. As a rule of thumb, you want your housing expenses (mortgage, insurance, and taxes at a minimum, better to include maintenance) + all other monthly loan payments (car loans, credit cards, student loans, support payments, etc.) to be 45% or less of your total gross income. (Gross income is your income before taxes and other deductions are removed.)
Planning for the Future
- If you plan to buy a new home, what can you afford? A mortgage lender (preferably a Certified Divorce Lending Professional such as myself) can help you determine what you can afford. Obtaining a prequalification is always recommended before you begin house hunting – this ensures that you know what you can afford before you get your heart set on a home. It is particularly important to work with a CDLP® during the divorce process to help you and your attorney develop a settlement agreement that will help you buy a home post-divorce.
- When is the right time to buy a new home? If you plan to buy a new home for yourself, the best time to do this is after the divorce is final. It is possible to buy a new home for yourself prior to the divorce being final, but doing so is much harder and requires permission from the court.
Selling Your Jointly Owned Property
- Select one realtor to represent both you and your ex-spouse. The realtor should be a neutral third party who will look out for your common best interests. Hopefully those common interests are to sell the home as quickly as possible, for the best price possible. Before selecting a realtor, ask about their experience working with divorcing couples.
- Set expectations up front. Discuss and agree on items such as the minimum acceptable sale price, scheduling showings, who is responsible for paying for any necessary repairs, etc.
- Establish communication guidelines with your realtor. Communication with the realtor is critical – make sure discussions are summarized in writing and key decisions are documented.
- Supply your attorneys’ contact information to the realtor. In case of any stalemates or other issues, your realtor may need to contact your attorney.
Buying Out the Property from Your Spouse
- Plan to refinance the mortgage into your name only. A lender does not care if you and your spouse have divorced and does not care about what the divorce decree says in regards to who is responsible for paying the mortgage post-divorce. If you are keeping the house, then you need to ensure the mortgage is only in your name. There are two ways to do this – via a refinance or an assumption. Generally a refinance is less expensive and may also create an opportunity to obtain cash from the equity of the home which can be used to pay out your ex’s interest in the home. A refinance should be done as soon as possible after finalization of the divorce. If you are receiving support from your ex and that support is necessary to qualify for the mortgage, there are certain guidelines that must be met. A CDLP® can work with you to determine what you may qualify for and to help you complete the refinance.
Co-owning property with your ex-spouse may be challenging, but in some cases is the best option.
- Prepare a “partnership agreement” related to the property. This should include:
- When will the home be sold?
- How will any proceeds or debts upon sale of the home be allocated?
- Who will pay for expenses related the home during joint ownership? Include the mortgage, insurance, taxes, maintenance, repairs, etc.
- How will you determine which repairs and maintenance are necessary?
- Determine your priorities. Use this handy Priorities Worksheet to help identify them. You may need to make tradeoffs, especially when it comes to jointly owned property and understanding your priorities can help you know which tradeoffs you are willing to make.
- Think of your home as an asset. Do your best to separate your emotions about the home and your divorce from the property itself.
- Determine who will pay for the martial home during the divorce process. This is very important, as it is detrimental to both you and your soon-to-be ex if any mortgage payments are missed. Identify and document in writing who will pay the mortgage, the insurance, the taxes and any requirement maintenance of the home (HOA fees, lawn care, utilities, repairs, etc.) during the divorce process.
- If you paying or receiving support, make sure your support agreement is in writing and that you pay or receive the support exactly as determined in the agreement. Any variations in payments from the agreement may complicate future mortgage financing – for example, a variation in receiving support could eliminate all support payments from being used towards qualifying income for a new mortgage. If possible, set up automatic payments through a service or your bank(s) to help document the payments. This guideline applies whether the support is temporary or permanent.
- If you don’t have a credit card in your own name, get one. You want to establish credit in your name only. The sooner you do this, the better.
- If you have joint accounts, close them as soon as possible. This is especially important for any lines of credit. Having a zero balance is not the same as closing an account! Make sure specifically ask the lender to close the account and obtain confirmation of the closure.
If you are divorcing and have an existing mortgage or want to buy a new home, talk to a mortgage lender – preferably a Certified Divorce Lending Professional® such as myself – early in the divorce process.
A Certified Divorce Lending Professional® (or CDLP) has special training and expertise to navigate the complicated intersection of mortgage lending, real property laws and tax codes. CDLPs work with attorneys or financial advisors and their clients to:
- Identify the options for and implications of dividing residential real estate
- Identify divorce settlement agreement elements necessary to support future residential real estate financing needs
- Manage post settlement residential property transactions
A CDLP can help you and your attorney or financial advisor make decisions about existing residential real estate and prepare you for future residential real estate financing needs. Your goals for future home ownership are critical to understand early in the divorce process so your attorney can help craft a settlement that supports those goals. However, attorneys and financial advisors are not experts at mortgage financing, the same way loan officers are aren’t experts on the law or financial planning, and a CDLP can step in to provide that expertise and detailed recommendations specific to your mortgage situation and goals.
Even if you did not engage a CDLP during the divorce process, one can help you after the divorce as well. Their additional training will help ensure a smooth process for a refinance or a purchase.