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Consider refinancing requirements during property division

When faced with a divorce, many Colorado residents will go to great lengths to preserve some semblance of calm and normalcy in their otherwise tumultuous lives. That may include making every effort to hold onto their family home, even when other assets are more financially favorable. When one spouse wants to keep the home, the other spouse must agree to accept his or her share of the home's equity through other assets. Refinancing the home in the retaining spouse's name is almost always part of the property division agreement.

There is good reason for having the mortgage refinanced. For one, the departing spouse may be unable to secure his or her own new mortgage if they remain listed as responsible party on a home in which they no longer have an ownership interest. In many divorce agreements, the retaining spouse is given a period of time in which to secure new financing. If that is not possible, the agreement may stipulate that the property will be sold and the proceeds divided according to the terms of the agreement.

This places the retaining spouse in a position where securing a new loan is a necessity. That requires an updated credit check, income verification and all other aspects that would apply to any prospective borrower. In the timeframe surrounding a divorce, however, these hurdles may be somewhat more difficult to clear. Credit scores often take a hit around the time of divorce, and lenders may require proof of six months or more of alimony or child support payments before those funds can be considered as part of the borrower's income.

When considering various property division options, Colorado spouses should carefully consider whether retaining the family home is really in their financial best interests. Unless a spouse is in a position in which refinancing the home poses no problem, it may be better to sell the property and use the proceeds to fund the purchase of a new home. This is a decision that must be made based on each individual spouse's unique set of circumstances and long-term financial goals.

Source: The Huffington Post, "It's Harder to Divorce the House Than the Spouse!", Ashley Tate Cooper, July 17, 2017

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