1. Continue to live together until one of you can refinance or the home sells.

2. One person continues to live in the home but both parties split the bills.  This situation would only work if you or your spouse has a friend or family member willing to let him/her rent for free.

3.  Negotiate a short sale. A short sale is when you get the permission of your mortgage lender to sell the house for less than what you owe on the mortgage and hopefully, you negotiate that you won’t have to make up the difference.  Most lenders will not extend the option for a short sale unless if you’re behind on your mortgage payments by several months.

4. Walk away from the home.  Let it go into foreclosure.  While this is generally not recommended, I would prefer to see clients cut their losses before sinking every penny (including cashing out retirement assets) to pay for a losing asset.

5. Negotiate a loan modification.  This may be a good option if you and your spouse do not want to enter foreclosure, however, you cannot afford the payments.  If you can renegotiate your mortgage terms, you may be able to sell the home to break even, rent the home, or one party may be able to live in the home.

What you need to remember is that with all of the above options, if both parties are on the loan, then BOTH parties still remain liable until you sell the home or refinance yourself. It is important to make these decisions jointly with your spouse as you still remain legally tied to this home, regardless if your marriage has been dissolved.

This article was posted on Examiner.com on 7/31/09, written by Thomas Pierce:

Divorce and the marital home; a cautionary tale

(exerpt, full article can be found here)

Her plan was to refinance her current mortgage, payoff the ex husband, and take some cash for some home repairs. She discussed this with her ex husband and he appeared to be on board.

In discussing her current mortgage she mentioned that she and her ex husband had taken out a home equity line prior to the divorce becoming final. The purpose of the line, she told me, was to have money available in case the house required any major repairs or if they needed money to fund their children’s college education. As loan to value was tight and because many homeowners do not consider a home equity line a mortgage (they are indeed mortgages), I breathed deeply and asked her “have you ever taken out any money on line?” She told me that while her ex husband had approached her last fall about accessing the home equity line, she refused his request, and that the line had a zero balance. Relieved, I advised her to proceed with the refinance.

My friend dutifully gathered her paperwork and forwarded them to the broker. About two hours after the broker had her paperwork I got a phone call from the processor who was working the loan. He told me that not only did the home equity line have a balance it was maxed out and was two months late. It fell to me to deliver the bad news. Needless to say my friend had a very bad day that day.

Now instead of having sole ownership of the house for only an additional $100.00 a month and some cash to tackle some home improvement projects with she now is faced with legal costs and the prospect of having to pay an additional $300.00 a month on a home equity line from which she derived no benefit as the ex husband is broke. As for the ex husband, who used the home equity line to pay down $70,000 in credit card debt, he could face criminal charges and faces the very real prospect of having to pay alimony for the rest of my friend’s life. As I have second hand familiarity with the attorney representing my friend I would say that the ex husband’s troubles are only beginning.

The lesson here is that divorced couples need to separate their financial lives from the ex spouses as much as possible. While arrangements such as mine and my friend’s are common, leaving loose ends such as an open home equity line available to both parties is just a recipe for trouble.

There are several avenues to obtain this information. One way is through informal or formal discovery.  This is the path that attorney’s take to request information from the other party and then the other party provides the information or objects to the request.  This can be a lengthy process and if you ultimately feel that your spouse is still hiding something after producing the documents that you requested, you may want to go a more aggressive route.  You may want to hire an investigator, more specifically, a forensic accountant.   The advice of a forensic accountant can be invaluable, helping to ensure that the divorce settlement is based upon full disclosure of information.

Simply put, forensic accountants analyze money.  By sifting through complex financial documents, forensic accountants develop an accurate assessment of the relevant financial situation. When forensic accountants become involved in family law disputes, they evaluate when money is coming into the family, where assets are stored, and how assets are being distributed.   Property division can only be fair with a full understanding of the marital assets. If both spouses have not been actively involved in the management of family finances, one might not be aware of all investments.   If one spouse is attempting to conceal assets, it may be nearly impossible for an untrained person to them.  A forensic accountant can investigate and review finances to determine whether there are hidden assets and to ensure that the property division accounts for all martial assets.

In order to do this you must first determine the fair market value.  The fair market value (FMV) is either agreed to by the parties, determined by an individual appraisal, the tax appraisal, or a realtor.  The fair market value is then reduced by the remaining amount of mortgage balance(s) on the property and by the costs of sale.

Generally, Judges use an 8% cost of sale (7% commission + 1% closing costs).  Some may not agree with the value of the home being assessed the cost of sale if one party does not intend to sell the home, however, the courts rationale is that the house will likely be sold at some point, and those costs will ultimately have to be paid and reduce the value of the property to the recipient.

VALUE OF REAL ESTATE SIMPLE EQUATION

FMV – (MORTGAGE BALANCE + 8% COST OF SALE)= NET EQUITY

Here is a link to the full article.

Why Your Prenup May Need a Check-Up: By Melissa Korn (WSJ Blogs)

Lawyers used to tell clients to put their prenuptial agreemeents in a locked drawer and keep them there unless the marriage goes south.

These days, however, some are recommending a second look at those documents, no matter how stable your relationship may be.

As asset values plummeted over the past year, your net worth probably did, too. And don’t think you have to be a gazillionaire to need a pre-nup, anyway. Any couple who saw the value of their house or vacation home skyrocket then plummet over the past decade or a couple with substantial individual savings or investment assets could be due for a review.

So if you were once valued at $1 million in real estate and other assets, you could now be down to $500,000. If your pre-nup said you would fork over $300,000 (rather than 30% of your assets) in the case of divorce, you’d still be on the hook for that amount. Thirty percent might be manageable; $300,000, a lot less so, especially if you worked on Wall Street and are now sitting on the couch

Ivan Tabek, a partner in the personal-planning practice at Proskauer Rose LLP, warns that many pre-nuptial agreements (and post-nuptials, for that matter) could be “woefully out of date.” He recommends reviewing all the numbers in a document to see if they’re still relevant and, if not, updating them. He notes that pre-nuptial agreements usually take into account projected asset value and income, which may need to be re-checked as people scale back investment expectations and lose their jobs.

From a legal standpoint, changing a pre-nup is fairly simple, Mr. Taback says. The awkwardness comes in because a couple must acknowledge a potential split. He says spouses should have separate legal counsel, since their interests are different.

Renegotiating can get messy when the less-affluent spouse is unwilling to give up what he or she believes is rightfully theirs, even if the money isn’t there anymore. Lawyers, property appraisals and bank statements come in handy here.

The remedy you have against your spouse in this situation is to go back to court to enforce the divorce decree or settlement agreement.  However, you are still obligated in the meantime to pay the credit card company, or the debt may be turned over to collections and negatively affect your credit.

If the court determines that the debt was necessary, such as to pay ordinary living expenses, then the court will evaluate several factors with respect to the situation of the parties, for example, if temporary maintenance was received, if one spouse refused to work, if one spouse had to work two jobs to support the other spouse, etc.  and will divide the debt equitably based upon relevant factors.

The Johnson County Family Law Bench/Bar Guidelines suggest that “Individual Property” is defined as follows:

1. the entry value of property owned prior to the marriage, and brought into the marriage
2. entry value of property received during the marriage by will or inheritance
3. entry value of property received during the marriage b a gift from someone other than the spouse or children of the parties.

As a general rule, the individual property will not be divided between the parties, but restored to the party by whom it was acquired.   The individual property is restored at its entry value at the time the parties were married or at the time the asset came into the marriage.   When individual assets are sold and proceeds are used for the purchase of other assets then, the recently purchased assets is individual to the extent of the value of the individual asset used to purchase the new asset.  However, when individual assets are liquidated and the proceeds used for basic living expenses, and are not traceable to the purchase of a new assets, this money is no longer an individual asset.

1. IS IT RIGHT FOR ME?

Prenups aren’t just for the fabulously rich. They can play a pivotal role in protecting people at all income levels.

One of the more common reasons to get a prenup is to protect the interests of children from a prior marriage. A sizable portion of assets automatically go to a spouse upon death in most states, but this can be avoided by using a prenup. Unlike wills, a prenup requires your partner to sign off on giving up those rights.

Another scenario when a prenup makes sense is when there’s a significant disparity in wealth. It’s also worth considering if you or your spouse-to-be owns a small business or a stake in a family business; a prenup can ensure ownership isn’t contested in a divorce.

Not everyone needs a prenup, of course.

“When a couple is starting from scratch and there are less assets brought in, there’s not as big a need,” said Greg Womack, a certified financial planner and president of Womack Investment Advisers in Edmond, Okla.

2. HOW MUCH WILL IT COST?

Getting a prenup won’t be cheap.

Even for a couple with modest assets, the cost could total a couple thousand dollars. An attorney might charge about $1,500 to draw up the document, either for a flat fee or at an hourly rate. Your partner would also want a separate attorney to avoid a conflict of interests.  The Law Office of Shea Stevens generally prepares these agreements for less than $1,000.  However, the total cost is generallya bit more since it is highly recommended for both parties to have separate attorneys.

“You’re about to waive away certain rights,” said Nickelson of the American Academy of Matriomonial Lawyers. “I think a lawyer is absolutely necessary for both parties.”

Each side might also want to tweak the agreement before signing it. Prenups for larger, more complicated estates can cost as much as $10,000, if not more.

Couples can also draw up a do-it-yourself prenup. But state laws regarding marital property can be complex, and an attorney can ensure the prenup covers all your bases.

3. WHAT SHOULD IT COVER?

The main purpose of a premarital agreement is sort out who owns what in the event of a divorce.

Typically, any debt someone has when they get married — such as a student loan — will follow them in a divorce. But even a spouse isn’t directly liable for their partner’s prior debt, creditors might be able to go after shared property such as cars or vacation homes.

A prenup can specify what property or debt will be shared in a marriage. For instance, you might own a home that you want to remain under your name alone in the event of a divorce. Or you and your partner might agree to commingle all assets each brings into the marriage, as well as those earned in the future.

You can spell out how alimony will be handled, too.  Kansas uses the term maintenance, not alimony.  The prenup can specify if you plan on waiving your right to maintenance, or set the amount of maintenance, for instance, if you are married you will get X amount for X months.

4. IS THERE ANYTHING A PRENUP CAN’T COVER?

Forget about striking a deal on who gets custody of the kids in a prenup.

“You can’t just waive away the rights of children,” said Mitchell Karpf, incoming chair of the family law section of the American Bar Association. Essentially, a prenup can’t trump public policy.  You cannot waive child support in a prenuptial agreement either.  The Kansas courts retain jurisdiction over the children until they are 18 years of age.

You could, however, spell out how a child is raised, including the religion that should be observed.

Another taboo subject heading into a lifelong partnership is infidelity. This could be the only topic even more squirm inducing than money.

It’s not uncommon to hear of high-profile prenups that include stipulations that void a spouse’s alimony rights if caught cheating.

While there’s no reason your prenup can’t include a similar clause, Karpf cautions that they can be messy and protract legal proceedings.

“The problem is, how do you prove it?” Karpf said.

Most states also have laws dictating that prenups need to be generally fair and reasonable. That means a prenup that gives everything to one party might not hold up.

5. IS A PRENUP EASY TO INVALIDATE?

It seems the only time a prenup makes news is when it’s contested, which may give the impression that they’re easy to overturn.

That shouldn’t be the case if properly executed.

The first step is to allow ample time to think over the terms. Getting a prenup shoved at you on your wedding day could later give you ground to claim it was signed under duress.

There also needs to be reasonable disclosure. So if you’ve kept quiet about a $100,000 savings account, start talking.

6. HOW OFTEN SHOULD A PRENUP BE UPDATED?

As with any legal document, it’s a good idea to update your prenup whenever there’s a significant change in your circumstances.

This might include the birth of a child, an inheritance or a career change. Such life-altering events might be grounds for invalidating certain financial agreements made in a prenup.

“Prenups can become outdated,” said Womack. “The court might decide the document is no longer appropriate under changed circumstances.”