Episode Transcript
[00:00:00] Speaker A: Welcome to Home Story with Veronica. I'm Veronica Dicus and today we're diving into the people, places and decisions that make a house a home. You're watching now Media Television.
Welcome to Home Story with Veronica. Where real estate meets real life and every address has a story behind it. Hi, I'm Veronica Diquez. And today's episode is for anyone facing one of the hardest chapters, divorce and the home included in the divorce. Because house isn't just a building instability, cash flow memories, and sometimes the biggest financial risk on the table. Joining me is Kelly Hughes. Did I say your name right?
[00:00:38] Speaker B: You did correct.
[00:00:39] Speaker A: Kelly Hughes. She's a financial advisor and certified divorce financial analyst, or cdfa, and the founder of Smart Divorce Decisions. She helps people translate legal plus emotional chaos into into a financial plan that they can actually live with. Kelly, welcome to the show.
[00:00:58] Speaker B: Thank you for having me.
[00:00:58] Speaker A: Absolutely. It's a pleasure to have you. First question I want to ask you because a lot of people I'm sure don't know what is exactly a certified divorce financial analyst or cdfa.
[00:01:07] Speaker B: Haha. So I do financial analysis when there are disagreements between the couple going through the divorce about maybe it's the amount of money in the marital estate that needs to be divided. Maybe it's disagreements about how to divide up the retirement accounts, how to divide up the home equity, sometimes how to divide up the debts that the couple has that are marital. Sometimes it's disagreement about whether property is marital or separate property.
[00:01:38] Speaker A: Okay.
[00:01:39] Speaker B: Sometimes I help attorneys who are having a difficult time explaining settlement proposal to their clients and the clients can't quite understand what the cash flow schedule is going to look like for spousal support or child support.
[00:01:53] Speaker A: Okay. And it can all get very complicated.
[00:01:56] Speaker B: Yes.
[00:01:56] Speaker A: During a divorce, besides the emotional part of it. Yes, I'm sure. Yes, I'm sure. You're an angel to many people out there.
Literally. Now let's set the tone. I'm not doing law school on tv. I'm not doing planning. We're going to do plain English clarity. So in North Carolina and South Carolina, courts look at fairness and dividing marital property. But the right move for a family often comes down to affordability, timing, and protecting the next chapter. So, Kelly, before we talk houses, what made you build your work around divorce financial planning and what do you wish more people understood before they make their first big decision?
[00:02:33] Speaker B: So I decided to focus in the divorce space in my financial advisory practice because I was going through a divorce myself.
[00:02:40] Speaker A: Okay. And that makes sense.
[00:02:42] Speaker B: I had a lot of questions involving spousal support and child support. I have three children.
[00:02:49] Speaker A: Okay.
[00:02:50] Speaker B: My oldest was a freshman in high school when we were getting divorced. And I knew that in my state, North Carolina, child support ends when the child is 18 years old and has graduated from high school.
And so I knew that whatever agreement we were coming to at that time was going to be changing within four years. Okay. And so I was looking for assistance in modeling out what my cash flow was going to look like from the spousal support and the changing child support. Yep. And then I also started wondering what in the world was going on with the retirement account. And so I needed starting to dig into some complexities there.
[00:03:30] Speaker A: Okay.
[00:03:31] Speaker B: I couldn't find that type of help. My divorce attorney wasn't well. Wasn't well positioned to help me dig into the details and track down. What do you mean we have a HELOC I didn't know about? What do you mean we have a crypto account I don't know about?
[00:03:47] Speaker A: That's information they need. Yes.
[00:03:49] Speaker B: It was very critical to our settlement.
So that's what sparked my interest. Okay. And that's how I found the certified Divorce Financial Analyst designation for financial advisors, paralegals, CPAs, and attorneys.
[00:04:03] Speaker A: Okay. That is so interesting.
Okay, now, when you walk into a divorce case, what are your first numbers that you want on the table so that you're not negotiating in the dark?
[00:04:15] Speaker B: I want a full, accurate, complete net worth amount for the couple. I want to know the breakdown of how much of these assets are liquid. Okay. I want to know how much of these assets are qualified in retirement accounts. I want to know how much is represented by the home equity. I also want to know, is there a HELOC in place? Is there what is owed on the mortgage? What is the current.
What is the current market value of the home? And then I also want to know the couple's tax status, because that is a very critical component in making a decision about the marital residence. Okay.
[00:04:54] Speaker A: So, yes, people, divorce is not just signing a paper and moving on. There's so much more that goes into it, especially if you have property together, you have retirement accounts together, and so forth. So make sure that you pay attention to this episode, because I'm sorry, if you're going through a divorce or congratulations. If you're going through a divorce, you never know what the case is. But this is very important information.
Now let's hit the question that everyone asks in real life. What usually decides whether one spouse keeps the house, whether it has to be sold, or if there's a Buyout.
[00:05:27] Speaker B: There are so many decision factors that go into that decision. Yeah. Usually people start by thinking about if there are children involved. I don't want the children to have to change school districts.
[00:05:39] Speaker A: True.
[00:05:40] Speaker B: Right.
[00:05:40] Speaker A: That is a very important.
[00:05:41] Speaker B: That is a common, common theme in my client conversations.
So when I'm talking with a client and she's trying to decide whether or not keeping the marital residence is the best decision, we start talking about things that she may not have thought about, such as, are there any pending repairs needed to the home? Okay. How long ago was the roof replaced on your home?
Do you have any plumbing issues that need to be taken care of? Are there any H VAC issues that need to be taken care of? When was the last time you replaced the water heater? These are significantly expensive expenses and repairs to make. And you want to make sure that they are accounted for in the final settlement of a divorce case. Yes. Another factor that I want my clients to consider thoughtfully is, okay, how long do you intend to stay in this home?
Are you going to be in this home longer than it takes for your divorce to be finalized? Because if so, we need to do a tax impact analysis for you so that you can understand if there are going to be any capital gains tax liability that you need to be compensated for in the divorce settlement.
[00:06:58] Speaker A: Oh, that is so interesting. Okay. What else? So you look at all of this before you recommend if the house should be sold or if it should be kept or if there's a buyout?
[00:07:08] Speaker B: Absolutely. Because I want my clients to be fully informed and feel confident making the decisions when they're accepting a proposal. Yes.
[00:07:18] Speaker A: Okay. So do you have any stories on this matter that you can share with us or. Or a client who made a decision based on what you told them and maybe they thought they wanted to do something different?
[00:07:32] Speaker B: So one story comes to mind.
[00:07:34] Speaker A: Okay.
[00:07:34] Speaker B: A client who came to work with me after her divorce settlement was finalized, and she and her ex husband had been in complete agreement that they wanted their children to stay in the same school district, and there was going to be spousal support involved and there was going to be child support involved. And at the time they were making these decisions, they hadn't done the analysis for how child support was going to be changing because her son was older and. And about to graduate high school. And when she made these decisions, there was more child support involved. Gotcha.
So in the final order that was drafted up, there was language requiring her to stay in the school district.
[00:08:22] Speaker A: Okay.
[00:08:23] Speaker B: She lost her job pretty soon after the divorce. Was finalized. Oh, no.
And it became financial.
A financial burden for her to remain in the same school district. It was a very affluent school district.
It became a financial hardship for her to stay in the same school district. But here are a couple of things to consider.
Spousal support is not modifiable unless it goes away. And there are certain criteria that make spousal support come to an end.
Child support does change, however. Lots of times making a modification to a child support schedule involves additional legal expenses because you have to have an attorney who's going to draft it up. Sometimes you have to have attorneys to remediate it. And it also needs to be submitted to the court. So those are additional financial expenses that most commonly are the reason why people don't pursue a child support modification. Yeah. So that's one scenario where the decision that seemed right at the time, that
[00:09:27] Speaker A: may not be long term, three, four
[00:09:29] Speaker B: years down the road, was no longer the right decision.
[00:09:33] Speaker A: And this is why you meet with somebody like Kelly. Because she's gonna think about all these things that, you know, we don't necessarily think about. Cause we're not aware of them.
We are only looking at short term. We're not looking at long term. And it's just so important because, like, oh, my gosh, I feel so much for her that now we became a financial hardship to stay in that house.
[00:09:52] Speaker B: Yeah.
[00:09:53] Speaker A: And to make that happen. Ooh, that's Carrie. So, yes, talk to Kelly. People.
Now, deed versus mortgage. If someone's name is on the deed but not on the mortgage, or on the mortgage but not on the deed, what is the danger zone that people don't see coming? And I think you have a good story on that one.
[00:10:09] Speaker B: Okay. So this is a situation I see often, lots of times, especially in a case that involves a dependent spouse, we will see the other party agrees to continue paying the mortgage as a portion of their spousal support requirement.
[00:10:29] Speaker A: Okay.
[00:10:29] Speaker B: Right.
Sometimes we will see somebody stay on the deed to the house until a mortgage is refinanced. Okay. Or. Or paid off because the other person sells the property. Right.
These two scenarios, they. They.
A couple of risks come to mind. So when you're staying in the home and the other person is required to be paying the mortgage, you are completely at the their mercy whether or not they're paying the payment for the home that you're living in. Right. So that's an area of vulnerability. And I usually try to counsel my clients not to agree to that type of settlement.
[00:11:12] Speaker A: That makes sense.
[00:11:14] Speaker B: Vice versa, if you remain on the mortgage for a certain time. Yes, it may help your cash flow because that's less you have to pay in spousal support.
[00:11:22] Speaker A: Correct.
[00:11:22] Speaker B: But it also is using up some of your available credit, that debt of that mortgage. And so that could have future implications for you later on if you're trying to buy another property, to live in another investment property or just take out credit for any other reason.
[00:11:40] Speaker A: So this is a case by case thing that you have to review with them individually to do a full comprehensive study of what their situation is before you all can make a decision. If, yes, if I stay on the mortgage or the deed or vice versa.
[00:11:53] Speaker B: Well, and another situation that comes to mind is lots of times people will agree, okay, I'm going to take the house and I'm going to agree to refinance the mortgage in a certain time frame.
And I've seen this several times where
[00:12:10] Speaker A: let's pause right there. Okay, hold your thought on that one because we have to go in commercials right now. But we are going to finish this conversation because it is fantastic. So please don't go anywhere. We are going to be right back. Stories, strategies and inspiration to help you write your next home chapter. This is Home Story with Veronica on NOW Media Television.
And we're back. I'm Veronica Dinkerez and you're watching Home Story with Veronica on NOW Media Television. Let's jump back into today's conversation.
I am back with Home Story with Veronica. If you want more episodes like this, real life real estate decisions, you can watch Now Media TV live or on demand. Download the Now Media TV app on Roku or iOS on your phone, and you can catch the podcast version @Now Media TV. Today I'm here with Kelly Hughes and now we are going to get into some really good subjects. But before that, I cut her off from the first segment. So I want to make sure we go back to finish that thought because it was an amazing one. You were talking about refinancing a mortgage, correct?
[00:13:17] Speaker B: Yes.
[00:13:17] Speaker A: Let's pick up on that, please.
[00:13:18] Speaker B: Okay, so one scenario that I've seen quite a few times is somebody who's keeping the marital residence in the property division, they will agree to refinance the mortgage by a certain deadline, certain timeframe.
Sometimes it's very important to work with a mortgage lender before you agree to that because you want to be sure that you're actually going to be able to refinance that mortgage.
[00:13:47] Speaker A: This is something that has to be approved, people. You don't just decide you want to refinance at the lender says, oh, yeah, sure.
[00:13:53] Speaker B: I was having a meeting with an attorney one time and we were talking about this and I was arguing against the language that was going to require our client to refinance the mortgage by a certain amount of time. Okay. She was a dependent spouse. And I was talking with the attorney about, okay, this deadline's not going to work because the mortgage company is going to require her to have six months worth of as ordered on time support payments to be considered to be income towards qualifying for.
[00:14:28] Speaker A: So it's not going to count towards that. Yep.
[00:14:29] Speaker B: And the attorney looked at me and she's like, well, the judge orders it, so it's just going to happen. And I was like, that is not how the mortgage industry works.
[00:14:37] Speaker A: No, no, it's not.
[00:14:38] Speaker B: Right.
[00:14:38] Speaker A: The lender's not going to care.
[00:14:40] Speaker B: And I shared with the attorney a story of a client who had come to me because she was in a situation. She had agreed to have the mortgage refinanced a month after we were meeting.
She did not qualify for the mortgage because there was a reduction in force in her job.
So she didn't have the income coming in. She didn't have adequate spousal support or child support to be used as income criteria to qualify it. She was going to have to sell her house. And the house was a major part of the property division, the equity in the home. And yes, of course, when she sold the home, since it was distributed to her, the equity would go to her. But now she was going to be single and she was going to have to pay capital gains tax in the single tax filer bracket.
[00:15:27] Speaker A: Exactly.
[00:15:28] Speaker B: Okay.
[00:15:28] Speaker A: This is so important, people that understand how significant this is. There's how much it changes your financial world.
[00:15:34] Speaker B: Absolutely. Because when it comes to comes to excluding capital gains on that, if you are married, filing jointly, you can exclude up to $500,000 in capital gains, whereas if you're single, you can only exclude 250,000.
[00:15:52] Speaker A: Half of that people.
[00:15:53] Speaker B: So that's huge. And that is absolutely a calculation that needs to be reimbursed somewhere in the property settlement. Yes.
[00:16:02] Speaker A: Okay. Okay. I'm glad that we talked about that. Yes. Now we're getting into the most watchable moment of divorce real estate. One person wants to sell yesterday, the other person wants to stall, and the bills keep coming.
It happens a lot in divorces. People do not agree on what to do. Correct.
They have different opinions. We have to come to an agreement and we can help them with that, with whatever information is they're going to need to make the best informed decision for themselves. Now I'll frame it as a decision triangle. Legal ability, financial readiness and emotional timing. If one spouse moved out, if the house is underwater, or if the market is hot, people want to know what's possible now, not six months from now. Question to you, do most couples have to wait until the divorce is final to settle sale or is that a myth?
[00:16:55] Speaker B: That's a myth.
[00:16:56] Speaker A: Okay.
[00:16:56] Speaker B: Many couples are going to sell the house before they ever even come to a final property settlement agreement.
[00:17:03] Speaker A: Okay.
[00:17:03] Speaker B: It's just very important to make sure that everything is documented accurately and completely and that your attorneys who are drafting the final settlement have that paperwork to refer to.
[00:17:15] Speaker A: Okay. So again, what is your advice? Don't just go ahead and decide to sell the house and sell the house, Inform yourself, meet with someone like Kelly, make sure you understand the financial consequences of selling the house, and then decide to sell the house. Is that accurate?
[00:17:31] Speaker B: Yes, that's accurate.
[00:17:32] Speaker A: Okay.
[00:17:33] Speaker B: And if you're in a situation where it's a buyout, so one, one party is going to buy out the other person's equity interest. Okay.
That can get messy. Unless you have gone, taken the steps necessary to make sure that you're going to qualify for, let's say you're going to take a home equity line of credit in order to do that, make sure you qualify for that before you sign up for an obligation to spend quarter million dollars buying out your ex spouse. Yes.
[00:18:02] Speaker A: Again, these are some of the decisions that honestly, the decision is not on you. It is on whoever's going to give you the heloc, the home equity line of credit, or the refinancing loan, et cetera, et cetera. So you have to make sure that you really go through the entire process before you sign anything agreeing that you're going to do it.
[00:18:18] Speaker B: Right. There are some stiff penalties if you don't abide by a court order.
[00:18:21] Speaker A: I was going to ask you that.
[00:18:22] Speaker B: Yes.
[00:18:22] Speaker A: Yes. So I'm guessing there's consequences of even. Well, the lender said no. I wanted to do it, but the lender said no. What happens on that when you go back to the court and say, well, we couldn't do it?
[00:18:34] Speaker B: Well, so it doesn't always automatically go back to the court. Obviously it's beneficial if you can still maintain lines of communication with your ex spouse and just say, hey, I got declined for this particular loan. I am sending applications to these three additional companies. You're, you're showing that you're trying to comply with the order and always have those conversations by email so that you have recorded, written record of the communication going on and the attempts that you're making to comply with the order.
[00:19:04] Speaker A: Perfect. Now, in practical terms, do both spouses usually have to agree to the sale? And what happens when one spouse tries to block it?
[00:19:13] Speaker B: Okay, so this is interesting, and it actually brings to mind a story.
[00:19:18] Speaker A: I love stories. Those are the best.
[00:19:19] Speaker B: Teach. Okay. So I was teaching a class to a group of realtors, Divorce Considerations and Real Estate Transactions. And I asked the realtors to share some stories from clients that they had worked with who were getting divorced.
And one realtor shared this story that had happened to her.
She was trying to help this couple sell their house because the husband had been transferred for a job out of state.
Okay.
And once they got into the process, they discovered that it was actually the wife's house prior to marriage that had. That she took from the property settlement from a previous marriage.
[00:20:03] Speaker A: Imagine that. So not even this husband.
[00:20:05] Speaker B: Right.
Her previous husband, her ex husband. And she had gotten the house in the settlement.
[00:20:10] Speaker A: Okay.
[00:20:11] Speaker B: Okay.
She had not had her ex husband sign a quitclaim deed in the property settlement, which means he still had a
[00:20:21] Speaker A: claim to the property.
[00:20:23] Speaker B: So this, this transaction was happening in North Carolina.
So he still had takes two to sell 33% marital interest in the home because he had not signed it away as part of the property settlement.
So when she and her husband were trying to sell this, they had to get him to agree to it, which opened up a whole brand new can of worms for this woman and her ex husband. It was a very messy transaction indeed.
[00:20:52] Speaker A: Oh. So imagine this. You're married, you're trying to sell a house with your husband because he got a job out of state, but your ex husband has 33% claim on that. Oh, my God.
[00:21:02] Speaker B: It won't agree to the sale of the property.
[00:21:04] Speaker A: Oh, that is messy.
This is why you do things right, people. From the beginning, the paperwork matters.
[00:21:11] Speaker B: The forms matter. The attorneys will make sure that all of the paperwork is completed accurately and completely.
[00:21:17] Speaker A: So important.
Yes. So if one person blocks it, I'm guessing in your line of work, all you're doing is providing them the information of what's going to happen. If this is the scenario A, they agree and you sell it, or scenario B, they don't agree, you can't sell it. These are the consequences.
[00:21:35] Speaker B: Yes. Okay.
[00:21:36] Speaker A: Which is very important that you all should know. Now, if one person already moved out, what are the top two money decisions that need to be made immediately before resentment turns into missed Payments.
[00:21:47] Speaker B: There needs to be an email specifying exactly how the mortgage is getting paid, how the homeowner's insurance is getting paid, how the car insurance is getting paid. All of the joint living expenses need to be.
It needs to be written out who is paying what and what amount and when.
If you can have that communication early and you can have it in writing, that will save you so many headaches going forward.
[00:22:13] Speaker A: Absolutely. And the way that you help. So if I come and I say, listen, I'm getting a divorce, he moved out already out of the house.
What you helped me with is to understand the financial implications of anything that could happen from here on so that I make sure that I make the right decisions on whatever I'm negotiating with on the divorce deal.
[00:22:36] Speaker B: Not just that.
[00:22:36] Speaker A: Okay.
[00:22:37] Speaker B: But definitely that. Yeah. But also taking a look at what are the assets that are up for negotiation.
[00:22:44] Speaker A: Okay.
[00:22:45] Speaker B: What's your future projected income?
What are you going to need to be able to take care of your children going forward? Because just because a couple is getting divorced doesn't mean that their hopes and dreams for their children going off to college and going to grad school change. Right. So it's the entire family that we're looking at.
What are you going to need in your household to provide the life for your family going forward?
And also, what is your ex spouse going to need in their household to provide the lifestyle you all want for your family?
[00:23:19] Speaker A: Yes.
[00:23:19] Speaker B: So it's not just one person's interest, but it's the whole family's interest.
[00:23:23] Speaker A: The whole family.
[00:23:24] Speaker B: Because, and I see this all the time, the kids are not okay if one of the parents is in financial distress.
[00:23:30] Speaker A: Exactly.
[00:23:31] Speaker B: And so divorce done well, takes everybody's needs into consideration and ends up in a property settlement where nobody is strapped for cash and can't take the kids to their best friend's birthday party because they don't have the extra money available.
[00:23:46] Speaker A: Yes. And that is heartbreaking. That's when, I mean, besides the emotional fact that the parents are divorced now, just going through that. Right. Adds a whole different level of, you know, emotional trauma, for sure. So meeting with someone like you can prevent that from happening.
[00:24:01] Speaker B: Yes.
[00:24:01] Speaker A: And that's why your services are so important.
And again, if you're going through a divorce, how can they contact you? How can they find you? How can they get a consultation with you?
[00:24:11] Speaker B: Okay, so you can schedule a consultation with me at my website, www.smartdivorcedecisions.com. you can also find me on Facebook, martdivorcedecisions. And I'M on Instagram. Smart divorcedecisions.
[00:24:25] Speaker A: So did you all get it? Smart divorcedecisions.
Which honestly, if you're going to get divorced, you need to make smart decisions. So smartdivorcedecisions.com make sure that you follow her everywhere because the information that she puts out there is absolutely amazing. And you can schedule a consultation with Kelly directly. Yes. Okay. We are going to be right back with our next segment with more amazing questions for Kelly. We're going to talk about equity buyouts and the mortgage trap. So make sure that you come back to watch our next segment. Worries, strategies and inspiration to help you write your next home chapter. This is Home Story with Veronica on NOW Media Television.
And we're back. I'm Veronica Dinkerez and you're watching Home Story with Veronica on NOW Media Television. Let's jump back into today's conversation.
Welcome back to Home Story with Veronica. This segment is where I want everyone watching to take notes because you can be right emotionally and still end up financially trapped. So all ground is in the biggest confusion. Equity is not cash. Title is not the mortgage. And I'll just keep the house. It's not a plan unless the numbers work after the divorce. Now, Kelly, when you say equity, what exactly are you calculating and what do people forget to subtract when they're arguing over how much the house is worth?
[00:25:49] Speaker B: Got it. So equity, I'm looking at how much if they were to sell the house today. So the current market value, if they were to sell it and they paid off the mortgage and if there's a heloc, if they paid off the heloc and if there are any liens, if they paid those off, what is the amount of money after all of the closing costs that they would walk away with and be able to deposit in the bank account? That is the equity.
[00:26:18] Speaker A: That is equity.
[00:26:20] Speaker B: And what was the next question?
[00:26:22] Speaker A: So the next question is, what do people, what do people forget to subtract? So you mentioned HELOCs. Could be one of them.
[00:26:30] Speaker B: The primary thing that I see people forgetting to subtract is any potential home repairs that need to be made.
[00:26:39] Speaker A: Gotcha.
[00:26:40] Speaker B: So for instance, I was working on a case and she was planning to keep the house because he had moved out of state already. Okay. And, and I started asking her questions. You know, your home, how long have you lived there? Oh, 23 years. Okay.
When's the last time you replaced the roof?
[00:26:57] Speaker A: I love that question.
[00:26:58] Speaker B: And she said, I don't recall.
[00:27:01] Speaker A: So it's probably coming at the end of life.
Yep.
[00:27:04] Speaker B: And I said, okay, how about the water heater?
[00:27:07] Speaker A: Yeah.
[00:27:08] Speaker B: And she was like, oh, we did that two years ago. And I said, okay, how about the H VAC system? She said, five years ago.
I said, okay, I want you to gather those receipts.
[00:27:19] Speaker A: Yes.
[00:27:19] Speaker B: I want you to go get quotes for the roof and any other maintenance issues that you guys have been putting off for later. Because we want you to be credited with the actual amount that this house is representing you, and we want you to be credited with the exception expenses that you're going to have to incur in the years to come.
[00:27:45] Speaker A: Exactly. And another one that I had a conversation with somebody who is going through a divorce soon was a pool. They have, you know, build a pool in the house, but they're still paying it off. Some people install water filter systems and they're still paying it off. All of that comes with the house. Like when you sell the house, you can't just keep paying that on the side. You have to pay that off.
[00:28:06] Speaker B: Well, in generally, liabilities are going to follow the assets that they are attached to. Exactly.
[00:28:12] Speaker A: So that those are the things that you only think of. It's not just the house.
You have to subtract certain things from the equity.
[00:28:20] Speaker B: Yes, yes.
[00:28:20] Speaker A: That's very important.
[00:28:22] Speaker B: And the other thing that I see people forgetting to take into account, and I mentioned it earlier, is capital gains tax liability.
[00:28:29] Speaker A: That is huge. And not many people think about that until they get hit with it.
[00:28:33] Speaker B: And so it's very important to go through that process of collecting all of the paperwork, the receipts of all. Every. Every renovation that you've made on the home, every improvement you've made, anything that could be considered a tax deduction. And you need to have a tax professional actually give you a hard number of what your capital gains tax liability would be in the single tax filer bracket.
[00:28:57] Speaker A: The same rate.
[00:28:59] Speaker B: Yes. And they're going to take into consideration and follow the tax code about what is a deduction and what is not when it comes to renovations and improvements or repairs.
[00:29:08] Speaker A: Okay. You got a lot of homework to do. I'm sorry, people, but that's just the way it is.
In plain English, what is a buyout and what makes it fair versus risky?
[00:29:18] Speaker B: Okay, so usually the two largest assets in a couple's marital estate are going to be the home and their retirement accounts. Yes. And this is especially the fact if the couple is older and falling into what we call a gray divorce. So a divorce in their 50s or
[00:29:36] Speaker A: 60s, that they're really close to their retirement age. Okay.
[00:29:39] Speaker B: And so we've got large retirement accounts, we have very small mortgages, usually because they've been in the home 23 years and they. They spent a. They paid off a significant amount of that mortgage. Okay.
Buyout is going to be.
It can be cash, and that can be done through a HELOC or a refinance cash out. Okay. But lots of times the couple doesn't have the ability to come up with enough cash to adequately, adequately reimburse the other partner for what the home is worth or the equity.
[00:30:13] Speaker A: Okay.
[00:30:14] Speaker B: So that's when I work with them and look at the assets that are available for division and come up with some alternative solutions. Okay. So maybe we take a look at the retirement accounts and we consider the tax impact of that, and maybe we shuffle some of that around, and in the end, the person is actually being compensated for the buyout of the home because they're not having to give up certain other assets.
[00:30:41] Speaker A: Right.
[00:30:41] Speaker B: Makes sense.
[00:30:42] Speaker A: Yes. So it is a negotiation.
[00:30:44] Speaker B: Like absolutely everything is negotiation.
[00:30:46] Speaker A: Yeah. Everything is negotiable. Now, mortgage mistake of the year. What is the single biggest error that you see divorcing couples make with either payments, repairs, or timing that blows up their outcome?
[00:30:59] Speaker B: The biggest mistake I see is refusing to pay the mortgage.
Why?
[00:31:07] Speaker A: The bank does not care. You do know that you sign a piece of paper that said, if you don't pay, we'll take it away. They will take it away.
[00:31:13] Speaker B: And this happens simply because lots of times, especially in a contentious divorce case, one party, who, let's say they are the higher income earner, they're going to most likely be advised to don't give the other person any money because there's no order in place requiring you to. And do you want to be.
Do you want to be bankrolling her divorce case against you?
[00:31:38] Speaker A: Oh, my gosh. Yeah. Okay. Okay. So it gets better. It can get better.
[00:31:42] Speaker B: But when you're looking at marital assets, keeping the big picture in mind, keeping the contentiousness out of the conversation, and keeping focused on, let's get to a settlement that makes sure everybody is okay at the end of the day. That requires maintaining ownership of one of the largest assets in the marital estate. Yes.
[00:32:03] Speaker A: Yes. And you don't want the bank. Right. To be taking your home away from you.
[00:32:08] Speaker B: Exactly.
[00:32:08] Speaker A: Because now you've got no house, now you've got no equity, now you have no. Nothing there. And all the money that you put into that house is completely gone.
[00:32:15] Speaker B: Right.
[00:32:15] Speaker A: That is not smart.
[00:32:16] Speaker B: No.
[00:32:17] Speaker A: Okay. What other mistakes can you tell us about that you see, when it's a bitter divorce, when, like, I'm not going to bankroll you through our divorce. Things like that. Is there anything else that comes to mind that you think is a big mistake regarding anything? Real estate.
[00:32:30] Speaker B: So there's a story that comes to mind.
[00:32:32] Speaker A: Yes, I love stories and other stories.
[00:32:34] Speaker B: Okay.
So it's very important to keep the big picture in mind. And when I say the big picture, I'm saying, all right, I want the kids to be okay, no matter which parents house they're in.
[00:32:47] Speaker A: Think about your kids, people, not you,
[00:32:49] Speaker B: keeping them in mind. Yes. And I had a client, and I started working with her after the divorce settlement.
And as I was going through all of her paperwork, I started drilling down into her legal expenses.
And I.
I realized that my client had spent $4,000 having her attorney argue over the wedding china, which on the equitable distribution inventory was only worth $400.
[00:33:24] Speaker A: Oh, my goodness.
Wait, wait, wait, wait. Let me repeat this.
I'm paying an attorney for a thousand dollars to argue a china that's worth $400.
[00:33:39] Speaker B: That really happened.
[00:33:42] Speaker A: Why?
[00:33:44] Speaker B: I really don't know.
[00:33:45] Speaker A: That's mind blowing to me. That is mind blowing to me. Okay, so that's a big mistake.
[00:33:49] Speaker B: Yes. So keeping in mind what's important.
[00:33:53] Speaker A: And lots of $400.
[00:33:55] Speaker B: Exactly. And so lots of times.
And talking about the emotional aspect. Lots of times, especially in a gray divorce, when somebody's older and there's a house full of family heirlooms and memories attached.
See, people get bogged down filling out that household inventory, and they are focused on looking up the Kelly blue book value of Grandpa's 1957 Chevy or whatever. Yeah. Or they're on ebay looking at current pricing for.
For the Steinway piano. You know what I mean? Yeah. Some of these things are important, but when it comes down to it, it's just best if you all just go through the house and just say, I'll take this, I'll take this, I'll take this, I'll take this. And just let that part go and focus on the biggest assets and biggest liabilities in the marital estate and figure out the way you can divide them up that takes into account each person's future projected income. Yeah. Their ability to pay any liabilities that are going to be attached to the asset that they're taking, such as the pool.
And make sure that from a cash flow perspective, everybody's going to be fine going forward and everybody's going to have what they need. Yes.
[00:35:12] Speaker A: Especially if you have smaller children that you have to plan in supporting them for a while.
[00:35:16] Speaker B: Talking about college.
[00:35:17] Speaker A: Yes, I was going to ask you that. So I know many couples have accounts like a Roth IRA or something that they put together because we advise that for I'm not a financial advisor. We've taken a lot of classes and we've heard about it. So we tell people, hey, you should look into this. So if you have an account like that that is really not for retirement or anything like that, but it's for your children's college, you want to make sure it accumulates money. How does that come into play when you are analyzing everything for the divorce settlement?
[00:35:43] Speaker B: So we've had some recent legislation changes, okay, that, that factor in 529 accounts into the FAFSA application. And so depending on the children's ages, that is something that I'm going to be looking at. What, what's the current legislative environment? What's going to be factored into computing the family expected contribution.
[00:36:06] Speaker A: Gotcha. Okay.
[00:36:07] Speaker B: And that changes is my answer.
[00:36:09] Speaker A: Okay. It changes.
[00:36:10] Speaker B: It does.
[00:36:11] Speaker A: Make sure you talk to Kelly.
Give her everything that you got so she can really do a full analysis and help you out with that. And let's please remind them again one more time just in case. How can they find you if they want to schedule a consultation with you?
[00:36:24] Speaker B: You can schedule a consultation with me at www.smartdivorcedecisions.com Smart divorcedecisions.com I love the
[00:36:33] Speaker A: name, by the way.
[00:36:33] Speaker B: Thank you.
[00:36:34] Speaker A: Now in our final segment, I'm going to help viewers. Kelly is going to help you or so I'm just going to ask her how to look forward. Can I buy another home during a divorce? And what happens if there's a rental or investment property involved? So don't miss out. Final segment coming up, stories, strategies and inspiration to help you write your next home chapter. This is Home Story with Veronica on NOW Media Television.
And we're back. I'm Veronica Dinkerez and you're watching watching Home Story with Veronica on NOW Media Television. Let's jump back into today's conversation.
Welcome back to Home Story with Veronica. If you want more real estate conversations that actually help in real life, you can stream Now Media TV anytime. You can grab the Now Media TV app on Roku or on your iPhone or iOS and listen to the podcast version at www.nowmedia.tv.
this is the Future Chapter segment because people are already thinking about their next home while divorce is still unfolding. And that's natural. I'll position this as don't let a temporary season permanently damage your buying power and I'll widen it beyond the primary home. We're going to talk about rentals, investment properties. A lot of you have investment properties right now that create income questions, management questions and division questions that get.
That can get complicated real fast. So, Kelly, can someone buy a home while going through a divorce? And what do lenders typically want to see before they approve it? Let's start with that and then we'll get into the investment property.
[00:38:09] Speaker B: Got it. So, yes, somebody can buy real estate while they're going through a divorce. But I strongly encourage you, if you're considering doing this, to talk with your attorney and make sure that the appropriate forms get sent signed. Otherwise you are soon to be ex spouse could potentially have a marital interest in the property that you buy during the divorce process. That changes from state to state how that works and so you definitely need an attorney's guidance on what forms are required.
[00:38:39] Speaker A: Okay, perfect. Now let's get into the nitty gritty. You are getting a divorce and you don't only have your primary home, but you actually have investment properties. Whether it's a rental property, a short term rental property, commercial real estate. It doesn't matter what it is, you own other real estate property. If there's a rental or investment property. What is your first question, Kelly, that you ask to decide whether keeping it is smart or whether selling it makes more sense?
[00:39:05] Speaker B: So my first question is going to be, are these properties organized under a real estate llc?
[00:39:10] Speaker A: Okay.
[00:39:11] Speaker B: And if so, then we need to make a decision about whether or not we're going to treat this as a business entity and determine each person's marital interest in the business entity.
Are we going to consider the income stream when we're talking about spousal support and child support and somebody's ability to pay and also somebody's financial need. Okay, and what I mean by that, yes, if investment properties are distributed to the dependent spouse who's going to be qualifying for spousal support, the income from that rental property needs to be counted as income and therefore lower the financial need. A mistake I often see is that investment properties are treated solely as real estate and so not as income, only part of the property distribution and not part of the financial need and financial affidavit conversation.
[00:40:09] Speaker A: Okay, so for example, if I'm getting a divorce and I have a short term rental property in Florida beach house, and we don't discount it as real estate, but I rented an Airbnb and I make a profit of $1,000 a month.
Now I'm asking my soon to be ex husband to give me spousal support or child support, But I'm getting $1,000 here a month. That's going to affect how much he gives me, correct? It should. Okay.
[00:40:36] Speaker B: Yes. Because that's income that you have coming in. Now if I were your financial advocate going into that mediation with you.
[00:40:43] Speaker A: Yes.
[00:40:44] Speaker B: I would be asking you to give me the last three years worth of operating statements for that investment property.
[00:40:50] Speaker A: Okay.
[00:40:50] Speaker B: And I would be coming up with a figure of.
Actually, this is only what you make. You get paid $1,000 a month. But are you aware that you're paying $575 a month in expenses?
[00:41:01] Speaker A: Exactly.
[00:41:02] Speaker B: So I would be drilling down to get the accurate income amount for that.
[00:41:06] Speaker A: Exactly. Okay. Now you mentioned something about llc, but that's one of your first questions.
Does it matter if the LLC belongs only to one of the spouses when you're negotiating?
[00:41:18] Speaker B: So there are a couple of factors that I would consider. Okay. I would take a look at when the LLC was established. Okay. And then I would look at each component, each asset of the LLC and when they were acquired. And then I would be looking at the dates of the marriage and determining. First of all, property A and the LLC itself were in existence prior to the marriage. So they're separate property.
[00:41:43] Speaker A: However.
Okay.
[00:41:45] Speaker B: Property B, C and D were acquired during the marriage. So we're only talking about that.
[00:41:51] Speaker A: Okay. So it does separate. Okay, that makes sense. And that's very important.
[00:41:55] Speaker B: Yes.
[00:41:55] Speaker A: Does that change state by state as well or is.
[00:41:58] Speaker B: Okay, so. Yes, different states have different treatment of separate property.
[00:42:05] Speaker A: Okay. Okay. And when you say separate property, it's
[00:42:08] Speaker B: not your primary home as in the definition of what separate property is.
[00:42:11] Speaker A: Okay.
[00:42:12] Speaker B: Some states will consider the growth and value of the separate asset. Okay. Some states don't. Gotcha.
[00:42:18] Speaker A: Okay. This can be very.
[00:42:20] Speaker B: It's very complicated.
[00:42:21] Speaker A: This is why you need to meet with a professional because my, my mind is like all over the place right now. Okay. So I'm going to let you actually run the segment because this is so interesting.
What is some of the best advice or what is some of the information that you want to make sure our viewers get from talking about investment properties, rental properties, when it is related to a divorce financially.
[00:42:43] Speaker B: Okay. So I was just having lunch with an attorney that I work with and we were talking about how she's having a lot of clients come into her office and they've asked questions of ChatGPT and they think, think they know what they want to do based on ChatGPT's design.
[00:43:01] Speaker A: I love ChatGPT, but I would never get legal or financial advice from chat. Let's not do that, please.
[00:43:08] Speaker B: So that's what I said to her. I said, okay, well, so my response would be, well, that advice is worth exactly what you paid for it.
[00:43:15] Speaker A: $20 a month if you get the paid version. Okay.
[00:43:18] Speaker B: So my best advice for somebody going through a divorce situation is to recognize that there are professionals that focus in the divorce space.
You've got divorce attorneys, obviously. You've got certified divorce financial analysts. You have certified divorce lending professionals. Okay. You have forensic accountants. You have certified divorce real estate experts. This is such a common scenario, and the factors to consider are so varied and complicated. There are professionals that focus, especially in this space. Yes. So to tie in my CHAT GBT story to this point is to, say, recognize the value that you're getting by working with a professional who understands the divorce process, specifically the divorce process where you live. Because it changes.
[00:44:13] Speaker A: Yes.
[00:44:14] Speaker B: And listen to their guidance because they're going to point you in the right direction and they're going to have your best interests at heart.
[00:44:21] Speaker A: Exactly. Now, you mentioned all of the teams that work together. You know, the attorney, yourself, the realtor. When should the team get involved together? Divorce attorney, lender, realtor. So that the strategy is coordinated instead of chaotic.
[00:44:35] Speaker B: So my cases that run the smoothest and have the best outcomes for my clients are when they come to me right when they are making the decision to get separated or right when they. After they get separated.
[00:44:50] Speaker A: Okay.
[00:44:50] Speaker B: And then I help them walk through the process of. Here's all the financial information that you need to gather. And I help them prepare for that consultation with their attorney.
[00:45:01] Speaker A: Perfect.
[00:45:01] Speaker B: During that process of getting prepared to meet with the attorney, if we have tax questions, I'm going to send them to a CPA that I work with who works. She's very well versed in the divorce sections of the IRS code. And she's. She's actually successfully argued two innocent spouse waivers for me with the irs.
[00:45:21] Speaker A: Oh, nice.
[00:45:22] Speaker B: So she. She and I have worked many cases together. Yeah. If there are questions about whether or not the person should keep the marital residence, then I'm going to send them to one of my certified divorce lending professional partners and just go through the process of. Okay. Here's what it's going to take from a support aspect for you to qualify for what the certified divorce real estate experts report says your home is going to sell for.
[00:45:48] Speaker A: Yep.
[00:45:49] Speaker B: So we will have gathered the preliminary information from all of the various professionals before they sit down with the divorce attorney. And the attorneys that I work with love my clients because they come to them, they are so well prepared.
[00:46:05] Speaker A: Prepared.
[00:46:06] Speaker B: Exactly. And they're.
The attorneys are going to be able to help them by saying, what are the matters that I need to negotiate on your behalf?
What is the supporting documentation that I need in order to successfully negotiate this on your behalf? And what exactly do you want from the settlement? And then they will draft it up and they will go and they will present a proposal and if needed, there will be negotiations. Sometimes we go into mediation and it's a big to do to prepare for a mediation, but we do that when the couple cannot come to an agreement.
[00:46:41] Speaker A: Gotcha.
[00:46:42] Speaker B: And they. It's just the cases run smoothly. No divorce attorney wants a case to drag out for four years with no progress being made. Of course, no one wants. Wants that scenario. So when my clients come to the attorney ready to go with their ducks in a row. Yeah. And they have the information that the attorney needs to make some progress. They love that.
[00:47:03] Speaker A: That's it.
[00:47:04] Speaker B: Yeah.
[00:47:04] Speaker A: Listen, from my personal experience, I know that, you know, my current husband did not get any professional help on his divorce and he did not end up in a good position, let's put it that way. So it is very important that you understand that you're not just signing a piece of paper and then it goes away. If you have assets together, if you have real estate together, which is what we're talking about today on Home Story, it is very important that you meet with somebody who's going to give you again, like you said, the big picture. It's always about the big picture. I know a lot of people get into a divorce and they just want it over with. They want that chapter of their lives done so that they can move on and continue. But if you try to rush through it, you are going to probably, hopefully not, but probably suffer some really bad consequences later on financially, emotionally, for your kids, if you have kids.
So it is very important to meet with somebody like Kelly. And this was so eye opening for me because there were a lot of things that you really don't think about, especially when you're in that emotional stage of getting a divorce. You don't think about all of these things that are involved in it. That somebody who's looking at it from the outside with a professional point of view can really help you organize so that you don't suffer long term consequences from those decisions.
[00:48:20] Speaker B: Exactly. People who are going through a divorce, whether they initiated it or not. Right. Are going through a grief process.
[00:48:28] Speaker A: They are.
[00:48:28] Speaker B: And lots of times people are going to be in a frozen state.
[00:48:32] Speaker A: Yes.
[00:48:33] Speaker B: And sometimes they hit delays. And I can help them get through that because a simple to do list. I need this information. Exactly. I need this information from you. Let's meet so I can ask you some questions.
[00:48:46] Speaker A: Yeah.
[00:48:47] Speaker B: And. Okay, here's my recommendation.
Who? Here's the attorney that I recommend that you hire. And then later on, if you have all the results.
[00:48:56] Speaker A: Yes.
[00:48:57] Speaker B: Later if we go on, then I'll meet with my client and their attorney. And then if we head to mediation, we do that together. And it just makes it better because when you're grieving, you're not necessarily in the best place to be your own best advocate.
[00:49:10] Speaker A: Yep.
[00:49:10] Speaker B: And sometimes people have a hard time making that transition from viewing the person who is their life partner. Yeah. To now. I need to take care of myself and my children.
[00:49:20] Speaker A: This was such a good episode. I think we can do five episodes like this. Thank you, Kelly, so much for being on the show. Thank you. It was such a pleasure. Please catch our show again when we bring more real life real estate conversations to you. Thank you for watching Home Story.
[00:49:33] Speaker B: Thank you.
