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Divorce and loans

| Nov 10, 2020 | Divorce

Issuance of a divorce decree does not end the possible consequences of a divorce. Asset division and other matters can impact future financial matters such as loans and mortgages. Addressing these issues can help prevent future financial and lifestyle problems.

Joint debts

When spouses divide joint debt, they should clearly define the creditor’s name and account number. The bank, account number and credit balance should be expressly stated.

Late payments on open joint accounts accrued during marriage will negatively impact both spouses’ credit reports. Negative reports can harm their ability to obtain credit, rent or purchase a home or obtain a security clearance.

To help prevent this credit damage, remove yourself from liability for all joint accounts if your former spouse makes late payments. This may also stop future unauthorized charges made in your name after your divorce which can lead to litigation with your former spouse and damage to your credit report for up to seven years.

Support

Banks may consider child or spousal support as income for loan approval. But the spouse seeking the loan must present proof that they received these payments for at least six months before applying for the loan. Payments must also continue for at least three years after that loan’s closing date.

If this income is needed for purchasing a home, it is better to receive less money each month over a longer time. This helps assure that the three-year eligibility requirement is met.

Property support payments, however, are not considered as income for a home loan. The length of these payments do not matter.

Mortgaged real estate

The spouse holding ownership of real estate encumbered by a mortgage should refinance the loan in their own name. Refinancing the loan out of name ends liability and debt and payment are no longer that spouse’s responsibility.

The recommended period for refinancing is within six months of the divorce decree. A quit claim deed may be done with the loan refinancing. After the spouse’s property is listed solely in their name, a homestead exemption may need to be filed.

A clear written agreement may help prevent financial problems and confusion. An attorney can help negotiate and draft these agreements and pursue a fair and reasonable settlement.