Allowing you to gain equity and take advantage of increases in property values, we all know that purchasing a home is typically a better financial decision versus renting, and it’s not like mortgage lenders will turn down a qualified sale, but buying a house during the divorce process can be a sticky situation. The short answer is yes, you can purchase a home before your divorce is final, although it is important that you understand the proper steps to take when you’re purchasing a home before your divorce is finalized.
Louisiana is a community property state, meaning that all assets acquired during the marriage or with marital funds become a part of the marital property, giving each spouse equal rights in ownership. Now think about the time required from filing to finalizing the divorce, easily one to two years, depending on the type of marriage bond you have signed. Those with considerable assets may spend even longer before they come to an agreement on equitable division of property, slowing the process down even further.
Now that you’ve gone from a two-income household to purchasing a home based on a single income, it is important that you understand your buying power. Getting pre-approved allows you to fully understand your budget and helps to expedite the qualification process when submitting an offer in such a hot real estate market.
Community property laws in Louisiana can make the home-buying process a little more involved, especially when purchasing a home with a government-backed loan such as FHA, USDA, and VA loans. While married, both parties’ debts are used to calculate your debt-to-income ratio, which can negatively affect your buying power. Since in many circumstances, all monies held are also considered marital property, it is important to determine if marital assets will be used as a down payment, closing costs, or as proof of funds. This can have an effect on how remaining assets are divided during the divorce proceedings. Do not, however, attempt to conceal the purchase of a home from your soon-to-be former spouse.
Using marital assets to purchase your new home can give your spouse partial ownership, since Louisiana is a community property state. Rather than prohibit this purchase, mortgage lenders may require a court order signed by a judge that details who is responsible for what assets in the divorce. Written consent from the spouse may be required, or if the spouse is not cooperative or refuses out of spite, a court order can authorize the purchase.
In some cases, both parties’ names will appear on the deed at the time of purchase, and a Quit Claim Deed is necessary to transfer full ownership once the divorce is final and removes any interest in the home. Similarly, if the home is purchased in your own name prior to the divorce becoming final, the title company may require that the non-purchasing spouse sign over their rights to the property through an Interspousal Transfer Deed. This is usually met with a replying Stipulation and Order in which the non-purchasing spouse makes a claim for reimbursement of funds if the home was purchased using monies earned during the union.
Whether that reimbursement is calculated using the value of the home between the date of purchase and date of the divorce trial, the rental value of the home during that time, or the monies used to purchase the home, purchasing a home while going through a divorce requires a bit of cooperation on behalf of both spouses.
As you can see, purchasing a home before your divorce is final presents its own set of challenges aside from finding and falling in love with a property. With thorough preparation and guidance from The Law Office of Michael A. Rosenblatt, you can protect your rights and assets as you move forward with establishing your home both during and after divorce.