While purchasing a home during a divorce is possible, it’s generally a difficult process. In our firm, we recommend that you avoid it, and wait to purchase a home after you are divorced with a decree in place. But what if you have to get into a new home during the divorce process?
As I mentioned in my previous article, Qualifying for a Mortgage - OK - What About While Waiting for the Decree?, if you don't have three years of income or individually-filed tax returns that show you qualify for the mortgage, this can be complicated. Assuming that you have had counsel, with agreement from your attorney and financial professional to proceed with purchasing a home, there are several things you need to do right away:
Establish where the funds are coming from.
For example, if you live in a community property state like Texas, marital funds are joint. This means that if you use marital funds to make a big down payment on a home, your soon-to-be ex-spouse may have a legitimate claim on the realty you're purchasing.
Therefore, establish where the down payment money will come from. If possible use your own funds that you have kept separate throughout the marriage. Your soon-to-be ex-spouse won’t have a legitimate claim on the real estate.
Note: If you're purchasing a home outright, using separate funds, your solution is much simpler.
Get a Marital Settlement Agreement.
A Marital Settlement Agreement (MSA) can help you prove that a home is yours, and prevent marital claim on it by the ex-spouse. In order for the MSA to help, you must:
- Determine that you and your spouse are separated.
- Specify a date on which you separated.
- Use non-marital funds as a down payment.
Calculate your post-divorce budget.
Calculating your post-divorce budget is critical. Work with a qualified mortgage broker to help you determine what your new mortgage payment, utilities and property taxes will be on your new residence. Then you can take this information back to the negotiating table to request a division that helps you sustain it financially.
Calculate your post-divorce income.
You will need to prove to the mortgage underwriter that you can support the home in your new life. This will be based on:
- Your MSA
- Marital and non-marital funds being used for the down payment.
- Proof of how you will support the home going forward
Get court approval.
Your attorney can request court approval for the purchase of your new home. This order can protect you against claims from your ex-spouse going forward. You should give this to the mortgage underwriter, as well.
Alternatively, if your divorce is amicable, draft an agreement that indicates you're making the purchase with consent of your ex-spouse. He or she can then waive marital interest in the property.
When it comes to purchasing a new home during a divorce, we at Strada Wealth Management advise our clients to let the financial dust settle before making big decisions around purchasing a new home, but should you have to purchase a new home during the divorce process, please execute these critical actions and find advice from a fiduciary.
Are you seeking specialized financial guidance during a divorce? We can help! Contact us today at 866-526-7098.