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Monday, October 24, 2011

The Effect of Your Divorce Settlement On Your Future Borrowing Power

|Guest Post by Dick Critchlow|

For many divorcing couples the question arises concerning their ability to borrow money after the division of real and other marital assets. Even if you live in non-community property state, there are still questions you may wish to ask concerning your future borrowing power following your divorce settlement. After all, assets are an important part of an individual's ability to obtain a loan, so you need to learn how your divorce settlement in terms of asset assignment will affect your borrowing power in the future.

It is good idea to talk to your divorce lawyer before you begin the process of filing for divorce in order to find out the information you need to know about the affects of the divorce on your assets, especially how the valuation of those assets during the divorce proceedings can affect the valuation of your individual assets relative to borrowing ability. Some of the things that can possibly happen during the process of property distribution and asset valuation and assignment include the following:

• The majority of the martial assets will be assigned to the person who makes the least amount of money. This can substantially affect the value of your personal assets and thus your net worth.
• The real estate settlement may cause a devaluation of its value and thus reduce the net worth of both parties in the divorce steps.
• When there is an uneven distribution of the marital debt because of the differences in income, it can also leave the party with the heaviest debt load saddled with the burden of being unable to borrow because of a high debt to income ratio.
• If you live in a community property state the marital assets will be distributed evenly without regard to who contributed the most money or made the most payments on an individual purchase.

Since personal assets have a tremendous bearing on each person's ability to borrow money for any reason, if your divorce settlement causes a reduction in the value of those assets you are likely to suffer at least a minor negative effect in your borrowing capacity. On the other hand this will also depend upon how financially secure the divorce settlement will leave each party in the divorce. If you have substantial assets initially, you are probably not going to suffer substantially from a devaluation of those assets because of your divorce settlement.

The key factor is to plan ahead and acquire enough assets during the divorce in order to continue living in the same lifestyle you enjoyed while you were married. For instance, if you wish to retain the family home, you will need to have enough borrowing power to buy out your spouse's interest in the house during the divorce settlement. That doesn't mean you should attempt to hide assets in an effort to prevent them from becoming part of the marital property at the time of divorce steps but rather to put forth the effort to acquire enough additional assets so that when you divorce both you and your spouse will be able to live comfortably after the valuation and distribution of marital assets.

2 comments:

  1. The effects of divorce and how you label them (positively or negatively) will be determined by how you act while going through the divorce and what your focus is after the divorce is over.

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  2. A divorce can and will probably have lasting effects financially for both parties involved. Planning is essential from the very moment you pass divorce papers along. Finding the right legal advice is also very important as a good lawyer will know how to properly represent your best interests in a courtroom. When I went through my divorce I found great help through the website www.legal-yogi.com.

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