Divorce can introduce many challenges regarding the division of your assets and liabilities.  While you may be most interested in protecting your assets, you need to realistically regard the liabilities associated with them.

Let’s talk house and dog

There are some simple ways to look at this complicated situation. 

Complicated because there are numerous variables that go into your decision to seek certain assets, divide debts, determine custody of kids and pets-   These variables may include current and long-term financial obligations, anticipated long-term investment growth, tax liability, current and long-term income potential and needs for support. 

Simple because your settlement comes down to two considerations: the house and the dog.

Let's say your house is a representation of your assets and your dog represents all that you value but with limited financial worth.   In fact, the dog could actually represent your home.  Your house has value, possible equity.  Your home has no financial value but immense emotional attachment.

Moreover, the dog can represent other aspects of your settlement that may include actual items as well, but with minimal financial gain or loss to either spouse.

Don’t get the house and dog confused.

If you seek the house, but it makes your home a miserable place to live because you can't afford it, you may want to reconsider.  When considering the house, know that it’s just that, a house, not your home.  Your house is going to seem a little less like home during your divorce no matter what. Eventually, your home will re-emerge and it will be different.  It may not be in the same house and it will be spouse free, but it will be your home again.  So, don't let your home fears and frustration influence your decision regarding your house.

While we naturally gravitate towards a weaponizable demand for the most advantageous financial settlement to include the award of the most gratifying possession of your list of assets, your house; it's important to use logic instead of emotions when negotiating your potential settlement. 

The house

In our example, we will use a "house" to show the importance of analyzing an asset based on numerous factors in order to help you negotiate the best settlement.   Then you will use the same method to consider other marital property.

Can you afford it?

If you want the "house" or any asset with associated liability in a divorce, you should be sure you can afford it without both incomes.  Make sure the terms that include amounts and longevity of support are also in line with the financial responsibility.  The basic principal here is to remember that while it is easy to regard your house as the brightest light in your financial life; the more debts against it, frustration to keep it, time working to pay for it may actually dim that light to a mere flicker of hope.  Much like most failed marriages; don't hold onto to something for the sake of holding on if it causes more misery than it provides happiness.

Know the expenses.

The house should have adequate equity (value over amount owed).  You need to have all the details regarding maintenance of the home to include: property taxes, association fees, home maintenance costs, anticipated repairs, monthly mortgage amounts, years remaining on the mortgage, type of mortgage, terms of the mortgage, buy-out potential to remove your spouse from the mortgage, resale potential, likelihood of job transfers and other reasons you may need to move, etc.  

Remove your spouse from the loan.

You will likely need to remove your spouse from the mortgage.  To do so, you will need to refinance the home without him/her.   This means you will need to qualify alone.  This can be done before or after you are divorced.  If after, it is important to limit the time period until the residing spouse buys out and/or refinances the property.

Higher payment, less risk-

If the house has an adjustable rate mortgage you could consider refinancing into a fixed rate to ensure you will have adequate support for the term of the loan (an adjustable rate mortgage payment may increase).  The fixed rate and refinancing costs may increase your monthly payment if you generally maintain the same term, but it will present less variables over the term of the loan that could affect your monthly payment.   Also, know that when negotiating support, your household debts will include your monthly mortgage payment, that if currently on a lower adjustable rate may result in less support and an insufficient amount upon refinancing into a higher, fixed rate.  

Lower payment, more risk or longer term-

If you are unable to afford your house on a fixed rate, you may consider refinancing into an adjustable rate to lower your overall monthly payments.  However, know that this is a risk based on economic fluctuations that are outside of your control. 

The other option, if you have paid a reasonable amount of principal on your house's current mortgage would be to refinance the house back to a 30 year mortgage.  This is not recommended since it resets your debt on your house back to 30 years of payments.  But, in some cases you may be able to make extra payments once or twice a year at your discretion to offset the extra years owed on the mortgage. 

Also, if you can refinance into a lowered rate, it may lower your monthly payment.  It's important to be clear about the costs to include all points, prepaids and fees charged by the lender or broker to complete the loan.  

Your potential loan and preapproval process should be explained by your mortgage broker.  She will provide a Good Faith Estimate that goes over the details of the proposed loan.  This document is presented in the beginning of the loan process. 

If your spouse keeps the house, you should know that until the house is refinanced, regardless of the legal settlement agreement, you are both still financially responsible and the loan balance, payments & loan history will be considered in any new financing you or your spouse wish to obtain (including a new residence) regardless of your settlement agreement. 

It's not easy to qualify with two mortgages.

Whomever surrenders the house should know that his name will stay on the mortgage until arrangements are made to refinance or pay off the existing loan.  This means it may be more difficult for that spouse to purchase or rent another house until his name is removed from the mortgage on the original home.  The payment history will continue to be reported in his name and debt-to-income ratio for both houses would be considered if he attempted to purchase another house, until the original is refinanced without him. 

His obligation for child support or alimony would also be considered in most applicable loans.  Likewise, it is usually accepted as part of the household income for the recipient.  However, there are some exceptions and guidelines.  Consult your mortgage broker for clarification. 

Sometimes your existing mortgage company may have programs designed to refinance the house with less stringent lending criteria when special circumstances such as divorce occur.  You will still need to meet their approval process based on the remaining balance of the mortgage and without your spouse's income.  This is not a common opportunity, but it is worth asking before starting the process with a new loan originator.

Consider previous loans refinanced into the current mortgage.

Next, you should consider if the house assumed any debt (due to a previous refinance or home equity loans) from your spouse to include student loans, credit cards, automobiles, etc. in previous refinances, lines of credit or home equity loans.  If so, the amount should be considered in your settlement.

Now apply this same scrutinizing analysis to all marital property

You should continue to analyze all of your assets and liabilities in a similar fashion.  This means understanding penalties, taxes, fees, equity to determine gains taxes in comparison to purchase value of each asset (e.g. stocks, bonds, real estate, etc.).  It's always good to consult your financial advisor or an attorney regarding some of these issues.

The dog

As mentioned above, your dog is representational of what you emotionally value that has either liability only or no significant financial value.  Basically, it's the part of your life that many of us want to hold onto because it provides us love, happiness and gratification in ways money and assets can never do.

And yes, it may actually be your dog. 

Check out our November 2019 DMK Article "Who Keeps the Dog" or our DMK Pets section for articles, tips and advice about pets and divorce.

Sometimes in divorce, you must share or surrender "the dog".  Whatever the dog represents to you, you should know what you're getting into, holding onto or letting go.  You should know if it's emotionally valued or has a tangible worth.  Then determine what of all you value you must have, would be willing to share or would be willing to give up to attain what you value most.  Think about now as well as after your divorce.  Realize that your negative emotions and feelings about your ex, your former marriage and past will change over the years. 

Even though behavior of either spouse may affect it, try to remember that your settlement should be about your future, not your past.  If punishing your ex during negotiations is more important than assuring you have the best settlement for your "life after divorce",  know that you will likely be disappointed on both fronts.

It's important to know what you value and why.

Knowing why you want something in a divorce will help you assign a logical value, even when your value is based on an emotional attachment.  This will help you limit long-term regrets.

After reaching the final stage of divorce it's not uncommon to realize some of the decisions made during the divorce may not have been made with a clear perspective.  In fact, there are almost always regrets regarding your final settlement.  Some you could have changed and some you couldn't. 

If your divorce is still pending, then you still have time to make the decisions that will lead to the least regret.  In doing so, know that you may never be completely satisfied with the settlement result.  But, you will be assured that you made the best decisions possible during an overwhelming and difficult time in your life. 

How to know your dog from a house, in your head (and heart).

As mentioned earlier some of the best ways to make decisions is to select the assets you want with a sound financial mindset instead of seeking a financial advantage over your spouse based on your emotions.  This is very difficult, but it will be this type of decision making that will provide the most return on your investments, least resistance to manage your liabilities and the best overall outcome in your immediate future.  It will provide you factual analysis to refer to in coming years as to why you chose one thing or another.  A financial advisor, accountant, your attorney or mediator will be very helpful in the negotiating process. 

Of course you may be in a good position to keep everything that has the financial and emotional value you feel you deserve.  But, this is where things can get out of perspective.  Of course, we all want the house and the dog.  In a perfect world, we would duplicate everything and each spouse would get everything they wanted.  But, we are going to have to settle for the imperfect world with imperfect settlements, spouses and attorneys. 

You're each going to have half of everything you owned together.

You both have a vested interest in everything you financially and emotionally regard.  Neither of you can have it all.  You will both need to reconcile with the fact that splitting up means that you will each likely end up with about 50% or less of what you had when you were together.  No matter who ends up on the right side of 50%, you will both definitely notice the difference of less resources, less assets and just plain less of everything.  It helps to know the best way to ensure the things you most value are in your half of the division. 

Give to get.

Giving up some of what you want to get what's really important and makes good financial sense for your individual circumstances will be a great leveraging tool in your negotiations!  Giving up one thing is what gives you the best chance to get what you value most.   

This doesn't mean to give up your house and every financial asset.  It just means that you may need to let go of some things in order to achieve the most important things to you.  Some may be of value financially and some may not.  Only you know what will be the best decision for you and your family. 

Perhaps a buy-out from your ex on one thing or another would provide you more power to start your new life without him/her.  Once you determine some things to give up and what things you won't, you will be on your way to gaining the power to personal happiness and perhaps a pretty darn cute mutt.    -OurDMK.com


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