Divorce and the distribution of your real estate may seriously affect your future borrowing power. How the court divides your assets may depend upon your state’s divorce laws. In community property states, the court divides marital property 50/50. The state exempts property owned before the marriage. However in non-community property states, the court divides assets differently. As a result, one party sometimes ends up with less borrowing power than the other.
Educate yourselves about the impacts of divorce and asset distribution. They contribute a great deal to your future borrowing power. Consult a divorce lawyer about how your divorce could affect your assets, especially in the valuation process. Do this before you file for divorce to learn about possible outcomes.
Some scenarios that can occur due to divorce and real estate settlement include:
- The court awards the party earning less money most of the marital property. This reduces the dollar value of assets.
- Divorce reduces both parties’ net worth due to devaluation of the real property.
- An unequal distribution of debts reduces borrowing power because of an increase in debt-to-income ratio.
- The court divides assets 50/50 in a community property state. Who contributed the most money does not matter.
- Some exemptions apply:
- gifts given specifically to one spouse
- property owned before the marriage and kept separate during the marriage
- Some exemptions apply:
Assets significantly impact borrowing power. In the best-case scenario, reducing the value of those assets causes a minor negative effect. This depends on how comfortable the divorce and ensuing distribution of real estate leaves each party. For both parties to maintain the same or similar lifestyle following divorce, each must acquire sufficient assets from the settlement. For example, while you may be awarded the marital home, you may have to pay your spouse for their equity in it. Your ability to finance a mortgage depends on your own borrowing power. Inability to qualify for a mortgage due to lack of assets from the divorce may require selling the home and splitting the profit, if any, with the other party.
Legal-Yogi can help.
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