Moving on emotionally after divorce is hard enough, but the financial difficulties can be a minefield. With emotions running high, and sometimes, challenging legal requirements, calm and considered financial negotiations are critical.

Accountants are often called on to negotiate through grey areas, trying to help work out the financial settlement and acting in the best interests of both parties where possible.

A mortgage broker is an excellent advisor and mentor through the process of splitting assets and liabilities. I have also found that having an independent party involved in negotiations and difficult decisions is very helpful.

I recently helped Judy from Echuca and her financial planner through a tricky financial settlement. Judy had separated from her husband and was less than confident about her financial future. She was especially worried about providing a stable home for her kids.

With several properties as assets, Judy and her husband had come to an agreement that she could keep the family home and he would keep the other properties.

The family home is often the key issue

Judy’s financial planner asked for my help in gauging whether Judy could afford to keep the family home.

“It was very hard, especially on the kids. I didn’t have a lot of free time to meet with anyone as I was trying to hold everything together,” said Judy in a post-loan interview.

“Patrick was very compassionate at a time when I needed someone to explain my financial situation in simple terms. I needed to know quickly whether I could afford to keep my home – I needed stability for my kids.”

When a divorcing couple tries to transfer home ownership into one name, their bank will become involved. The bank will want to reassess the new situation to see if the person retaining ownership can maintain the loan and a new mortgage will be required, which does not include the name of the person relinquishing ownership.

This means a new mortgage application.  All this becomes largely administrative, if the person retaining the house has enough income to support the loan on their own.

What is already a highly stressful situation is then made more difficult by the additional stress of working out how to pay a mortgage. What is needed is a calming and experienced professional to provide quick and accurate advice that can diffuse the situation. The experience of a mortgage broker can also be very valuable in providing some lateral thinking about how to solve the problems and road blocks which might arise.

After a quick assessment, I was able to let Judy know, on the same day she called, that based on the information provided by her financial planner she could keep her home. The relief in her voice was obvious and we were able to move forward to the next stage.

I worked with Judy to arrange the loan she needed for settlement, and support her through the court process. The loan was pre-approved, but due to the separation settlement, she still had to wait up to six weeks.

Divorce is complicated – there are always multiple scenarios

A mortgage broker is skilled in the many different scenarios and combinations of income and lending. Dealing with the complexities of divorce settlement is a speciality for Custom Financial.

For example, what happens when one member of the couple is going to keep the house and kids, while the other member has the majority of the income?

What happens when the person keeping the house has a new partner – can their income be used for the mortgage? What if the new partner takes part ownership of the house?

What happens if the couple has to sell the house, but can afford another, perhaps a smaller home?

What happens if there are multiple properties and these are being split between the divorcing couple?

It may be that the person retaining the house can afford a smaller mortgage, so the other pays something to reduce the mortgage. While this sounds simple, of course there will still need to be a new mortgage application and new legal documents.

Staying with the couple’s original bank may be an advantage given their history but more likely than not, history doesn’t count. It may well be that another bank has more favourable lending criteria that will suit the new circumstances better. For example, if Government Family Tax Benefits income was needed to obtain the new loan, banks can include or exclude this income based on different criteria.

Every situation is different and usually way more complex than the simple home loan taken out in the first place when they were a happy combined unit. Experience and flexibility from your mortgage broker is the key to a successful outcome.

More than just dollars and cents

Money and property ownership is an emotionally charged topic. As a mortgage broker, I have the flexibility to talk to clients at a time and place that suits them. Having an independent person involved, focussed on the future at a difficult time, makes all the difference.

Even if a solution is found to suit the client keeping the house, it may not be acceptable to the other party. There can be multiple scenarios worked out during negotiations. The vast experience of a mortgage broker means that this process is easier and with less stress.

Where do you start?

A mortgage broker can work through the possible scenarios with your client. In some cases, the joint involvement of the accountant, mortgage broker and client will be needed to work through the possibilities.

Simply saying “I want to keep the house” may not be a practical option – there could be more than one possible scenario that requires a mortgage broker to run some numbers. It is preferable to understand these scenarios before divorce negotiations commence. Custom Financial can provide an insight into what lies ahead for all parties – and a calm and experienced approach when emotions are running high.