Q: I am currently going through what I hope will be an amicable divorce.
I’ve offered to let my wife have the house, along with the furniture, in return for her refinancing the mortgage. She is supposed to take my name off the note and give me $20,000 in cash to start over.
That is if she wants to remain in the house that we actually purchased from her parents in 1998. We paid $210,000 for the house and had a first mortgage of $125,000, held by her parents, and a second mortgage for $75,000 that her father said he did not plan on executing.
Anyway, we owe about $67,000 on the first loan and the second loan has long since been past due and he has not requested that payment.
Can my wife refinance and take out $20,000? Her income is about $45,000 per year and mine is $85,000 per year. The interest rate on the loan is 7 percent and there are about 8 years left on the loan.
We have about $20,000 worth of furniture that would remain with the property. I plan to split my 401(k) and Profit Sharing Plan equitably, as we should be negotiating that through the attorneys soon. I have about $360,000 between the two and my wife has about $40,000 in hers.
With her receiving the house, I am looking to negotiate a total of $100,000 for her from my retirement plans. We are not really speaking at this point and have been pretty much separated living in the same house for well over a year.
Does this seem like a fair distribution of assets?
A: If I understand your question, you put down about $10,000 to buy the home in 1998. Your in-laws financed $200,000 of the $210,000 purchase price. You did not indicate what the home is now worth, but there is a loan balance on the first mortgage of about $67,000 and you probably never paid anything on the second mortgage. So, roughly, there is about $142,000 owed on the property.
Whether your wife can refinance will very much depend on your in-laws, your wife’s credit history and credit score, and your wife’s other debts and household expenses.
If your wife only has the balance of the first mortgage to refinance, she should be able to refinance as long as the taxes, insurance and association fees (if any) aren’t too high.
But to refinance in today’s climate, the home must appraise well above the value of the first mortgage, your in-laws must be willing to release the liens on the home for both the first and second mortgage and your wife’s income must be stable.
Having said all that, the real issue for you will be whether you will get her cooperation, your in-laws’ cooperation, and whether everybody is in agreement on the division of the retirement plan assets. If you and she see eye-to-eye on the division of all of the assets, the wild card might be your in-laws.
One possibility is that they will agree to refinance the remaining balance of the mortgages in just your wife’s name. They might agree to do that if they feel you are being more than fair to their daughter and grandchildren, if you have any.
You should talk to your divorce attorney and make sure that the division of assets is generally in the range that would be acceptable to your wife. Frequently, if the division of assets seems reasonable to one spouse but unreasonable to the other, the division of the assets will fall apart and the divorce may no longer be amicable.
Let us know how it all winds up.