When people are considering a divorce, one of the questions they often forget to ask themselves is, “How will this divorce affect my ability to qualify for a mortgage or make certain investment decisions in the future?”
Currently, we are working a case where a client has been dealing with her divorce for 3+ years, and she still does not have a divorce decree. This has prevented her from qualifying for a mortgage and making important investment decisions.
In general, mortgage underwriters like to see 3 years of verifiable income.
Divorce isn’t the only reason a person may need to wait 3 years.
In another case, a single, young professional was disqualified for a mortgage because she switched jobs and, as a result, no longer had 3 years of verifiable income.
In another case, a client without 3 years of verifiable income, could only purchase a home if her soon-to-be ex husband cosigned. However, this would prevent the ex-husband from obtaining his own mortgage.
Moreover, since she cannot qualify for a mortgage, she needs to keep liquid cash on hand for a potential home down payment. Everything seems to be in limbo and here is our current situation:
No decree. The underwriter will not qualify her for a mortgage.
Even though we know she has the income to support a mortgage, a considerable down payment will be required because she has no credit history as an individual tax-filer.
She has been sitting on cash for a long time while looking because she cannot verify a 3-year income history yet.
This client is missing a significant market opportunity because her liquid cash is not invested.
If this client came to us 3 years ago and said, "I want to buy this $600,000 home," and she provided a $300,000 down payment, she still would not have been able to qualify because she would not have amassed the required 3 years of tax returns filed as an individual. A real conundrum, if you ask me.
Even if she had the liquidity to buy a $600,000 house outright, that money will no longer be available to invest. Instead, $600,000 would be locked up in a slowly-appreciating asset as opposed to other, more lucrative investments; the flip side is she would have no mortgage.
With this client we have played it conservatively to make the best of a bad situation, yet we can only take it so far. Now the client is between a rock and a hard place. Not only does she have to wait to get through the verifiable period (3 years of established income - whether it be alimony, distributions, her own income, etc.), but she can't make any investment decisions. Unfortunately, that can preclude a person from moving on and finding closure - which is a very tough endeavor when you're trying to transition from married life to single life.
Our firm prides itself on the various angles and approaches we take with our clients simply because every situation is unique; cookie-cutter approaches won’t succeed in this arena.
The expertise of your financial team is often the deciding factor in navigating your divorce and investments. Our knowledge comes from experience working with real people. With over 9 years of day-in and day-out case experience, we are experts in post-divorce wealth management, divorce negotiations and its financial implications. Contact us today if you find yourself between a rock and a hard place.