Three Critical Components of a Divorce Financial Settlement
(That Should be Initiated Early in the Divorce Process)
Carlie Berke Headapohl, CDFA®
July 12, 2017
In my divorce practice as a Certified Divorce Financial Analyst (CDFA®), more often than not, the parties do not initiate certain key steps to securing their financial future early enough in the divorce process. I highlight three components below:
1. If you want to keep the family residence as your separate property, determine whether you have a source of funds to buy out your spouse’s interest and if you can qualify to refinance the home in your name.
- Determine if you will receive enough other assets in the divorce to provide a source of funds to offset or “buy out” your spouse’s half of the home equity.
- Talk to your lender and mortgage specialists to determine if you can qualify to refinance the mortgage in your name. There are mortgage professionals who specialize in divorce situations. They can help you take the right steps to qualify for a mortgage. This process can take months and you will learn what you will need to receive in terms of income and spousal and/or child support to qualify for the loan, so you can factor this into your settlement negotiations. For example, if you need child/spousal support income to qualify for a loan, generally you need to have been receiving 6 months of temporary support and be able to show 3 years of permanent support in your Marital Settlement Agreement (“MSA”).
- Make temporary support orders a priority early in your divorce process. Lenders typically require evidence of receipt of 6 months of temporary support, which means it will take a minimum of 6 months after starting to receive temporary support before you can close your new mortgage.
Lenders typically require evidence of receipt of 6 months of temporary support, which means it will take a minimum of 6 months after starting to receive temporary support before you can close your new mortgage.
2. A QDRO (Qualified Domestic Relations Order) is necessary to divide qualified retirement plan assets such as a 401(k). It is crucial to get this process started with an experienced QDRO professional who will work with the retirement plan administrators to ensure the QDRO is properly prepared and approved pending the signed MSA. The QDRO preparation process can take months to complete. The QDRO must conform to the provisions of your MSA and ideally be ready for signature when the divorce is final to allow timely transfer of the assets. Don’t wait until the divorce is final or almost final to start this process.
“Own your financial future by understanding your post-divorce budget.”
3. Prepare for financial independence and fortify yourself emotionally.
- Own your financial future by understanding your post-divorce budget. Think about the lifestyle you want or need and how you are going to afford it.
- Obtain or improve your credit.
- Dust off your resume and sharpen your skills through continuing education if you plan to re-enter the workforce or need to increase your income by changing jobs or careers.
- If you have not been the one in charge of your family finances, improve your financial IQ through workshops and working with a financial planner.
“Improve your financial IQ through workshops and working with a financial planner.”
The best defense is a good offense. Work with your divorce mediator to help initiate these three important steps early in your divorce process. Your divorce team may include a family law attorney, divorce mediator, CDFA®, therapist, CPA, estate attorney, wealth manager, career coach and other professionals that are trained in the areas you need to prepare for your life after divorce.
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