Life Changes & Finance? How We Support You Through Divorce and More

The hard truth is that about half of marriages end in divorce, a process that's not just emotionally devastating but also involves the complex task of splitting assets and debts.

When it comes to mortgages, things can get pretty tricky. A lot of couples, especially those relying on dual incomes, find themselves having to sell their home. They use the sale to pay off their mortgage and then divide whatever funds are left. In other cases, one partner might keep the house, which usually involves transferring the deed and either refinancing or reassigning the mortgage.

It's definitely not a walk in the park. Deciding the fate of a home during a divorce is both a financial and emotional minefield. However, with a bit of cooperation, navigating these choices doesn’t have to turn into a nightmare. 

Sure, it's common for couples to argue over their property, but those who are willing to calmly negotiate can steer clear of an extended, bitter legal fight. 

In the following sections, we'll address some of the most frequently asked questions in this area, providing clarity and guidance for those navigating through this intricate aspect of a divorce.

What happens to a mortgage after a divorce

In a divorce, dealing with the house, often the biggest asset, is high on the list. There are a few paths divorcing couples can take with their marital home:

• They might sell the house and divide the profits.
• Keep the mortgage as is, turning the house into an investment property.
• Transfer the mortgage solely to one individual.

CNBC Select spoke with divorce expert Amy Colton advises, "If one person plans to keep the house, it's crucial to ask, 'Can they afford it on their own?'" It's important to evaluate your monthly budget to see if you can handle the mortgage solo. Remember, the person staying will also need to cover other expenses like upkeep and property taxes. A good rule of thumb is the 28/36 guideline, which suggests spending less than 28% of your gross monthly income on housing and under 36% on total debt, including the mortgage.

If you're staying in the home, you'll likely need to requalify for the mortgage on your own, proving to the lender that you can afford it independently.

Many thinks splitting a mortgage post-divorce is just about signing some papers at the courthouse, but it's more complex than that. Colton points out that selling the home is often the cleanest way to free yourself from the mortgage and your former spouse.

If one partner wants to keep the house, the property title needs to be retitled first. The partner giving up the house should sign a quitclaim deed to remove their name from the title. Only after this can you sort out the mortgage details.

Dividing property in a divorce: understanding your options

When it comes to divorce, ideally, marital assets, including property, should be split evenly. However, the situation often gets complicated, particularly when children are involved. An equal division typically means selling the property, but there are various reasons you might want to avoid this.

Here's a rundown of what you can do with your home after a divorce:

1. Sell the property: This is straightforward. Selling lets you clear the mortgage, and you can split any equity to invest in new homes separately. But, if your children prefer to continue living there, this might not be the best solution.
2. Buyout: If one partner wishes to remain in the home, that person can buy out the other's share. This requires valuing the property to ensure the departing partner receives a fair share of the investment and equity.
3. Joint ownership with one resident: Both ex-partners retain ownership, but only one lives in the property. This arrangement is often chosen when children are involved. A court might issue a 'Mesher' order, delaying the sale until a specified time, like when the children turn 18.
4. Incorporate into settlement: One partner keeps the house, while the other receives assets of equivalent value from the marriage. This trade-off is part of the divorce settlement.
5. Court decision: If reaching an agreement proves difficult, the court can make the decision. In cases with children, the judge usually aims for minimal disruption to their lives. For this route, applying for a financial order is necessary, and it's advisable to seek legal advice to navigate the process.

Understanding these options can help in making informed decisions about how to handle property during a divorce, balancing personal needs and legal considerations.

Should you refinance your mortgage after divorce?

For couples going through a divorce with a joint mortgage, one option is to have one partner removed from the mortgage, leaving the other as the sole borrower. This can be done in two primary ways: through refinancing or assuming the existing mortgage.

In many cases, especially for mortgages post-2008, simple assumptions (where you just remove a co-borrower's name) aren't possible. Therefore, refinancing the mortgage under one person's name often becomes the go-to solution. 

Refinancing can be advantageous, particularly if current interest rates are lower than when you initially purchased your home. Colton notes that divorce agreements sometimes stipulate a specific timeframe for refinancing. But, with rising mortgage rates, be aware that refinancing could lead to higher monthly payments.

The good news is that refinancing doesn't have to happen right away following a divorce. Sometimes, couples come to alternative arrangements that don't involve refinancing. However, if you do go down the refinancing route, the spouse who wishes to keep the house must qualify for the new loan on their own, based on their income and credit score.

The Lending Channel's Support System

The Lending Channel offers a tailored support system for individuals going through a divorce, recognising the unique financial challenges and emotional stresses involved in such situations. 

Here's an overview of how The Lending Channel provides assistance to divorcees:

1. Personalised mortgage consultation: We provide one-on-one consultations to help divorcees understand their mortgage options. This includes assessing whether to refinance, sell the property, or find other ways to manage the mortgage post-divorce.
2. Refinancing solutions: For those looking to refinance their mortgage in just one name post-divorce, we at The Lending Channel offers guidance on the process, including navigating credit and income evaluations.
3. Equity assessment and buyout options: We assist in evaluating home equity and discussing potential buyout options if one party wishes to retain the property.
4. Alternative financing options: Understanding that traditional mortgages may not always be feasible, The Lending Channel explores alternative financing solutions, such as home equity loans or lines of credit.
5. Credit and financial counselling: Post-divorce, individuals may need to rebuild or re-establish credit. The Lending Channel provides counselling on how to manage and improve credit scores and overall financial health.
6. Legal and real estate network referrals: Recognising the need for comprehensive support, they can refer clients to trusted legal and real estate professionals who specialise in divorce cases.
7. Educational resources: We at The Lending Channel offers resources and educational materials to help clients understand the impact of divorce on mortgages and finances, empowering them to make informed decisions.
8. Emotional support and understanding: We approach each case with empathy, acknowledging the emotional aspects of divorce and striving to offer not just financial solutions but also a listening ear and support.
9. Flexible and timely service: Understanding that time can be critical in divorce situations, we offer flexible and timely services to meet the urgent needs of their clients.
10. Confidentiality and discretion: All consultations and transactions are handled with the utmost confidentiality and discretion, ensuring clients' privacy throughout the process.

Moving Forward: Financial Planning Post-Divorce

Moving forward after a divorce involves not only emotional healing but also careful financial planning. Here are key steps to consider for effective financial planning post-divorce:

1. Reassess your financial status: Start by getting a clear picture of your current financial situation. This includes understanding your income, expenses, assets, and debts. You'll likely need to adjust to a different income level and possibly new expenses.
2. Budgeting and expense management: Create a new budget that reflects your post-divorce financial reality. This may mean cutting back on certain expenses or finding ways to increase your income. Prioritise essential expenses and be mindful of any financial obligations arising from the divorce settlement, like alimony or child support.
3. Update financial accounts and documents: Ensure all financial accounts (bank accounts, credit cards, investments) are in your name only. Also, update beneficiaries on life insurance policies, retirement accounts, and wills.
4. Credit score review: Your credit score may have been impacted by the divorce, especially if you had joint accounts or loans. Obtain a credit report and work on rebuilding your credit score if necessary.
5. Debt management: If you have taken on debt from the divorce (such as a portion of joint debts or legal fees), create a plan to manage and pay off this debt. This might involve consolidating loans or negotiating payment plans.
6. Retirement planning: Review your retirement plans. You may need to adjust your savings strategy or update your retirement goals based on your new financial situation.
7. Emergency fund: Building or replenishing an emergency fund is crucial. Aim to have enough savings to cover at least three to six months of living expenses.
8. Insurance review: Reevaluate your insurance needs. This includes health, life, auto, and home insurance. Make sure you have adequate coverage for yourself and any dependents.
9. Investment strategy: Review and possibly adjust your investment strategy to align with your current financial goals and risk tolerance.
10. Seek professional advice: Consider working with a financial planner or advisor. They can provide valuable guidance on financial planning, investment strategies, and retirement planning post-divorce.
11. Long-term financial goals: Set new long-term financial goals. This might include buying a new home, saving for your children's education, or planning for retirement.
12. Education and career development: If you need to increase your income, consider further education or career development opportunities. This could involve going back to school, obtaining certifications, or exploring new career paths.
13. Mindful spending: Be more mindful of your spending habits. Avoid emotional spending and focus on financially beneficial habits and investments.

Financial planning post-divorce is about establishing a stable foundation for your new phase of life. It involves being proactive, making informed decisions, and sometimes seeking professional advice to ensure a secure financial future.

The bottom line

Dividing home ownership during a divorce is no easy task. By approaching the situation with a spirit of cooperation, carefully planning a post-divorce budget, and seeking the guidance of a financial expert, you and your ex can ease the financial strain of the split. 

At The Lending Channel, we can assist with the mortgage-related complexities of this process. Our team can provide insights and options for refinancing, handling joint mortgages, and understanding the impact on your credit and financial standing. With our support, navigating the mortgage aspects of your divorce can be more manageable and less stressful. Contact us today!