Mortgaging Your Post-Divorce Future

Mortgaging Your Post-Divorce Future

If you’re going through a divorce, many people could get involved and provide you support.  You hire an attorney and you work with the law firm’s staff.  You’ll be able to rely on family and friends. Many people will care about your divorce. One group of people who couldn’t care less are those working for the company holding your mortgage. If you and your spouse are responsible for paying a mortgage, a divorce won’t change that. You can get married and divorced as often as you’d like.  If the two of you signed up for that mortgage, the two of you are responsible for paying it.

If you are getting divorced, mortgage issues need to be addressed. A divorce decree stating your spouse will be responsible for paying off the mortgage has no legal impact on the lender. When the mortgage papers were signed, the two of you agreed to be held jointly responsible for repaying the loan. That means the two of you, or either of you, can be held liable for the loan.

These are your options for addressing this issue…

  1. Retain the Original Mortgage

This option has the most risks.  Often those who don’t retain competent attorneys to help them with the divorce, or try a do it yourself divorce, end up going this route. The parties agree one spouse will live in the property and he or she promises to make payments.  The mortgage isn’t changed. This agreement between the parties may have seemed to make sense at the time. The spouse had a good job and the children, with enough stress in their lives, didn’t want to move. Things can change. Maybe the spouse lost his or her job, or changed his or her mind and decided the other spouse should start paying too.

Both parties could leave the home and rent it, in the hopes the rent will at least pay the mortgage and other expenses (maybe even turn a profit). The demand for rental properties is generally up and this may allow some time for the real estate market to improve. On the down side, you’ll be in business with your ex-spouse and your disagreements may continue. What happens if you can’t agree on who should be a tenant? If repairs and maintenance are needed, who will pay for them?

If either scenario goes sour, this can result in a mortgage default, a foreclosure and wreck your credit rating. It will also keep you tied to the ex-spouse you went to all that trouble to divorce. Maybe you have fallen into this option because the housing market is so bad you can’t sell the house for a reasonable price. Perhaps there aren’t any mortgage companies willing to write a mortgage for either of you individually. Is this situation guaranteed to fail? No, but it does carry the most risks.

  1. Sell the House

On paper, this is the simplest way eliminate the mortgage and all the financial baggage that comes with it.  Sell the house, use the proceeds to pay off the note and split whatever money is left over. When possible, get this done before the divorce is finalized. Hopefully, whatever differences you have with your spouse won’t prevent you from agreeing to a sales price.  Once the home is sold and the mortgage paid, you don’t have to worry about continuing to make mortgage payments, maintaining the house, paying taxes or insurance.

The ability to sell a house for a reasonable price depends on a number of factors, most importantly how desirable your home is and the real estate market where you live.  If your mortgage is “under water” the mortgage holder may or may not agree to a short sale.

  1. One Spouse Keeps the Home and Refinances the Mortgage

This may be a good option if the parties are in good enough financial shape.  The spouse wanting the house buys out the other spouse’s equity share and refinances the mortgage in his or her own name. If you’re the one keeping the home, have your spouse sign a quit claim deed which relinquishes his or her ownership and rights to the property. If you’re not keeping the home, the new mortgage needs to be in the name of the other spouse only. If your name is on it, and your ex-spouse defaults, you may be held responsible for it.

This option assumes the spouse keeping the house has the resources to buy out the other and can qualify for a mortgage on his or her own.

  1. One Spouse Keeps the Home and Assumes the Mortgage

This can be done depending on the type of mortgage, the mortgage holder and the financial shape of the spouse staying in the home. Not all mortgages are assumable, so the first step is to read the mortgage paperwork or contact the mortgage holder.

If it is assumable, the process starts with the spouse keeping the home filling out paperwork. The lender will want to see that past payments have been paid on time and in full and will need proof the spouse will can afford the mortgage payments. The spouse keeping the house needs to sign an assumption agreement and a release of liability. The spouse leaving the home will need to sign a quit claim deed. The lender may ask for a copy of that and the divorce decree. If this is all approved by the lender, it may issue a release of liability to the spouse leaving the house.

This may be the way to go if the mortgage can be assumed and an added benefit is the fees to assume a mortgage should be lower than re-financing and getting a new mortgage.

Mortgages are but one of many financial issues a divorcing couple needs to resolve.  These issues can be difficult to unwind, but it can be done with some research, planning and cooperation by both parties. If you have any questions about financial issues and divorce, contact our office.

Mike's Top FAQs About Divorce

How is a military pension divided in a divorce?

How is a military pension divided in a divorce?

Divorce proceedings are conducted by state courts and they can divide military pensions. The federal Uniformed Services Former Spouses’ Protection Act (USFSPA) allows (but does not mandate) state courts divide military retirement pensions upon divorce, legal separation or annulment.

How much of the pension gets divided?

The share of a pension to the non-military spouse could be as low as nothing or as high as half.

  • The non-military spouse might get 50 percent of the pension only if the marriage lasted the service member’s entire military career.
  • If the marriage lasted for part of the military career, the pension division will probably be prorated to reflect the time the spouse served in the military.

How an ex-spouse gets paid?

The USFSPA has a 10/10 Rule which states that if the couple was married for ten or more years while a spouse performed at least ten years of service, the government will make payments directly to the ex-spouse.

If this rule doesn’t apply, but the non-military spouse is awarded a portion of the pension payments, the service member gets paid the entire amount but will be obligated to the correct portion to the ex-spouse.

Another way to get paid is to have an actuary evaluate the military spouse’s pension to determine its current cash value. The military spouse would then give the other spouse an equivalent value in cash or non-marital property, leaving the military spouse with exclusive rights to the pension.

Posted in: Divorce, Family Law, Military Divorce, Property Division

How are disability payments to a military veteran handled in a divorce proceeding?

How are disability payments to a military veteran handled in a divorce proceeding?

The federal Uniformed Services Former Spouses Protection Act (the “USFSPA”) permits divorce courts to award ex-spouses of service members part of “disposable retired pay” (the retired pay available (after necessary deductions) based on salary and years of service). How that’s divided is decided by an agreement between the parties or by the judge.

  • Under the USFSPA, military disability pay is not “disposable retired pay” and is not subject to division in divorce.
  • If a service member waives retired pay in order to get disability pay, an ex-spouse can lose out on hundreds or thousands of dollars which they might have received.

There are two kinds of military disability pay and both are excluded from the USFSPA definition of disposable retired pay:

  1. Military Disability Retired Pay: This is for those are disabled such that they can’t perform their military duties.
  2. VA Disability Compensation: This type of compensation from the Department of Veteran’s Affairs (VA) covers injuries or disabilities that occurred while on active duty, or which were made worse by active service, including service related (not necessarily combat related) mental or physical injuries.

To get these VA benefits, a service member must waive a certain amount of retired pay. If this is done, the amount waived is subtracted from the amount available to the former spouse.

Spouses can have some protections or take steps to get the maximum payments:

  1. If there is a separation or property agreement, it should include a provision stating if the service member waives any retired pay for disability pay, the service member would make a monthly payment to the non-military spouse in an amount that makes up for the lost retired pay.
  2. If there is no such agreement and the divorce issues are being litigated, the judge can be asked to retain jurisdiction to order the military member to pay spousal support in the future, or to modify an existing alimony order based on any change in the parties’ circumstances. If retired pay is reduced because of disability pay, the non-military ex-spouse could request the judge to order the military member to pay spousal support (or increase it) to make up for the retired pay that’s been lost.

 

Posted in: Divorce, Family Law, Military Divorce

What is the Service members Civil Relief Act (SCRA) in a Military Divorce?

What is the Service members Civil Relief Act (SCRA) in a Military Divorce?

The SCRA was enacted in order to help protect service member’s rights if and when they are called to active duty. It protects regular service branch members, in conjunction with members of the Coast Guard serving on active duty in support of the armed forces, members of the National Guard when serving in an active duty status under federal orders, and Reserve members who are called to active duty.

The SCRA affords the right for any court proceedings to be put on hold, or provided a “stay” to postpone any administrative activity if a member’s active duty has an effect on their ability to proceed in the case.  This specifically applies to child custody issues as well and a stay of court and administrative proceedings would be afforded in order to protect the non-present spouse’s parental rights. The SCRA would be incredibly helpful if a spouse were to attempt to change the status of child custody while the service member is deployed.

A ninety-day stay is automatically granted when a service member requests this protection in writing. However, any further delay is decided at the discretion of the judge, hearing officer or magistrate that is assigned to the matter. This protection is not afforded nor does it protect a member’s invocation right for any criminal court proceedings.

There are also many individual state laws related to military child custody. Through the USA4 Military Families initiative, the DoD is partnering with states in order to further support military families. Specifically USA4 Military Families is striving to educate policymakers and ensure deployment separation does not determine child custody decisions.

Posted in: Divorce, Family Law, Military Divorce

What is a Family Care Plan for Child Custody in a Military Divorce?

What is a Family Care Plan for Child Custody in a Military Divorce?

As with normal civilians, military couples are presented with child custody issues if they are seeking dissolution of marriage. Members of the military are aware that active duty often requires time away from home due to deployments, training or frequent relocations. These factors may present custody issues, however there are ways to prevent or relieve some of the stresses that can evolve in a military divorce regarding child custody matters.

A Family Care Plan is highly recommended and sometimes required in order to clarify necessary details about the care of your child if a service member is called to active duty or deployed at no notice. Although most couples aren’t required to establish a family care plan, if you are or become a single parent due to death of spouse, separation/divorce, a service member can remain active but must meet the family care requirements of DOD – essentially requiring such members to have a “family care plan.”

A Family Care Plan is a set of documents describing who will care of your child during specific instances or if a military member is away on deployment or training. When it comes to a Family Care Plan there are some slight differences depending on the service, however most have three basic requirements: short-term care providers, long-term care providers, and care provision details. These support details include naming who will care for the child, financial details, medical specifications, and logistical considerations pertaining to food, housing, transportation, etc. These named care providers must be a non-military person, who agrees, in writing to accept the care of the member’s child or children. This person will also sign the Family Care Plan, indicating they consent and understand the responsibilities they are being entrusted with.

Posted in: Divorce, Family Law, Military Divorce

Can parents create their own agreement for child support?

Can parents create their own agreement for child support?

Yes, parents can stipulate their own agreement regarding child support, but it must be approved by the court. In order for the court to consider reviewing the agreement, it must meet the following guidelines:

  1. There must already be an open court case between the parents.
  2. The agreement must contain the following information:
    1. Each parent is fully aware of his/her child support rights.
    2. Each parent is aware of what the guideline child support amount would be.
    3. Neither parent is feeling pressured or forced to agree on the stated amount.
    4. Neither parent is receiving public assistance or has applied for public assistance.
    5. Both parents think that the agreed upon amount is in the best interest of the child.

After you have reached an agreement with the other parent and have created a stipulation consistent with these guidelines, you will both need to sign the document. If you do not have attorneys, your signatures will need to be notarized. You can then submit the stipulation for the court’s review. If you have a court date scheduled, you can bring the stipulation with you to the hearing for the judge’s review and signature, or you can go to the courthouse and ask to speak with a family law clerk to get it approved and signed.

After you have received the judge’s signature, you’ll need to file the original with the court clerk, and serve a file-stamped copy of the order on the other parent (or their attorney, if they have one.)

Posted in: Child Support, Family Law