Latest / Divorce Dialogues / The Mortgage Mistake That Traps Divorcing Spouses | Jody Bruns
Transcript
- Jody Bruns (00:00): I don't like it when professionals say, "Well, let's look at the house from a business perspective," because I think you're discounting those emotions too much. It is a number. It does come down to the mortgage math, but it's more than mortgage math. It's number one, is it feasible? Can we even do it? The other thing is, can you afford it? Not just can you afford the mortgage payment, but can you afford life? Katherine Miller (00:28): Welcome to Divorce Dialogues. I'm Katherine Miller. This is where we have honest, thoughtful conversations about divorce. The emotional, financial, legal, and family questions no one prepares you for. From deciding whether to separate, to navigating the process with dignity, to rebuilding what comes next, Divorce Dialogues is here to help you find clarity, perspective, and a better way forward. For a lot of people going through a divorce, the house is one of the hardest things to think about letting go of. And that makes a lot of sense. A house isn't just an asset on your balance sheet, it's your home. It's where you raised your children, you celebrated holidays, your routines are there, and it's where you imagined your future, and it can really represent stability and security for yourself and for your kids at a time when almost everything else feels uncertain and shaky. So it's really not at all surprising that one of the things that people often feel most strongly about in the divorce is holding onto the house. (01:34): And sometimes it's about maintaining stability for the kids, and sometimes it's about holding onto something familiar when so much else is changing. And moving and divorce are obviously two of the biggest life stressors that we sometimes face. So sometimes the idea of losing the house feels like just one more loss, one more thing that you just can't face on top of all the other things. But, and there is a but here. Wanting to keep the house and understanding what it will mean to keep it are two totally different things. Can you afford it? Can you refinance it? What will keeping it mean for the rest of your financial life and the rest of your lifestyle? And maybe most importantly, is keeping this particular house really the best way to create the security that you are trying to protect? My guest today is Jody Bruns. She's founder and president of the Divorce Lending Association, and she's one of the leading experts in divorce mortgage planning. (02:30): She's the author of A House Divided: A Guide to Mortgage Financing and Divorce, and has spent decades helping divorcing individuals navigate complicated intersections of real estate, lending, and family law. Through her work, Jody has trained professionals across the country on how housing and mortgage decisions can impact divorce outcomes long after the settlement is signed. Today, Jody, I hope that we're talking about the family home and why it can become such an emotionally charged issue in divorce, what people and our listeners should understand before deciding whether or not to keep it and how to make the housing decisions to support not just the settlement, but the life they're building afterwards. So welcome, Jody Bruns. It's a pleasure to have you on the show. Jody Bruns (03:15): Thank you, Katherine. It's my pleasure. Katherine Miller (03:16): So that was a lot of talk about the family home, but I really do think that it's true that it is often a central piece, and I'm going to put air quotes around this for the listeners, to the financial picture because it's really kind of bridges. The house sits at a bridge between the financial assets, and obviously it's an asset, but also the personal life. And so I think that's one of the reasons why it's so difficult for people to let go of it. What do you think? What's your experience with that? Jody Bruns (03:46): I fully agree. I think too little weight, if you will, is given to the emotional side of the house. And as you mentioned, where holidays were spent, family gatherings, children were born, they took their first step. And in our experience, I think it's more of the divorces where there are children involved to where there's such a stronger weight from the emotional side attached to that house. Because the parents, they think they understand that the divorce is already disruptive enough and they don't want to have the kids get up and have to move. I've gone through a divorce, I had five young children, and I think that yes, you have to give weight to the children's emotions as well. But through the conversations I've had with multiple parents on this situation when we're trying to figure out a plan around housing is that the children are going to be happiest where their parents are happy. (04:49): They're resilient. And too many times I've worked with moms that were so adamant and their only goal was to retain the home regardless of the cost. And I'll give you an example really fast. There was this one mother that I was helping out in Colorado, and (05:08): Same situation. She had two boys, did not want to disrupt their lives, and she wanted to retain the home. From a mortgage perspective, I could qualify her, but from the skin of her teeth. And her boys played competitive baseball. Mine played competitive baseball. It is not a cheap sport. And I ended up having just a heart-to-heart conversation with her that you can qualify and you can keep this house, but would you rather tell your boys that I'm sorry, you can't go on this baseball tournament this weekend because they have to make the mortgage payment? Or would you rather build a new happy home for them and not disrupt their lives? And I don't like it when professionals say, "Well, let's look at the house from a business perspective," because I think you're discounting those emotions too much. It is a number. It does come down to the mortgage math, but it's more than mortgage math. (06:08): It's number one, is it feasible? Can we even do it? The other thing is, can you afford it? Not just can you afford the mortgage payment, but can you afford life? And then can we get the mortgage approved? But I think even more importantly, and it's such a concept that is often overlooked, is it sustainable? You may be able to retain that home and afford it for a year two, but when support starts to change or something else that we can plan on down the road and all of a sudden you're uprooted anyway, or you're super struggling financially, too many people, they discount that sustainability factor when they're considering their housing plans. All Katherine Miller (06:56): Right. You said a whole lot there, Jody, though. I just want to go back in and pull some of the real gems from what you just said. So one of the things I just want to say is that I wrote the emotionally savvy divorce, and one of the reasons I wrote it is because I think that this advice, treat the divorce like a business deal, including the house, is really, really bad advice because for one thing, we make decisions in the emotional part of our brain. So to think that business deals aren't being made emotionally is just wrong. And two, business decisions are really emotional. So why wouldn't they think that this is cut and dry? You can get upset about whether or not you should buy the blue suit or the black suit. That is emotional, even if it's low stakes. So anyway, I think that's a really important part. (07:40): And the house is so wrapped up with the way life looks and whether or not you think it's what it should look like. So I don't want to come back to that because I want to ask about some identity things, but I also just want to put a moment to pause on the at what cost question. Those aren't exactly your words, but I think that's what you mean. You're holding onto the house and to stability and a bunch of things. At what cost? And yet nickels and dimes and dollars and checks and all that sort of stuff, but what do you then not get to do because you are doing this thing? I think the example of your client who was like, "Well, I wouldn't be able to support my boys in their passion," bet you that really helped her understand the cost. Jody Bruns (08:24): I think we ended up selling the house and downsizing. Katherine Miller (08:27): But it could be, "I can't go on vacation. I can't see my parents who now live in Europe. I have to eat macaroni and cheese five days a week so that we can afford this." There's so much more that goes into what stability means than just what your address is. Jody Bruns (08:43): Exactly. No, I think too, a lot of divorcing homeowners, the one who wants to stay in the house, a lot of times it's because it's where their friends are. They become part of the neighborhood and they feel that it's just another aspect of their life that's going to change or they're going to lose that attachment. And I think sometimes they struggle just to hold some type of normalcy, and the house sometimes represents normalcy to them, comfort. Katherine Miller (09:13): The one thing I really wanted to come back to is this idea of identity. Because I think that, yes, I am the person who lives next door to my friends. I live near the club. I am the person who lives here. So not only am I giving up, I'm the person who's married to the other person. Whether or not this feels like a good thing or not good thing to you, it's a definite shift in how we see ourselves in our own definition in the world. Over all the work that you've done with people through this process, what have you learned about the relationship between home security and identity? Jody Bruns (09:47): Our approach with our CDLP certification is really having, I know it's a technical word, but an onboarding process with our clients. And mortgage professionals traditionally, when they're on an initial call with a new client, they turn on the mortgage math in their head. We can't do that. We have to understand the why behind keeping the house. Let's just say a mother was to call us and say, "I'm going through a divorce. I want to keep the house. That is my only goal. I don't want to look at any other options. I want to keep the house." I want to understand what is so important to you about keeping the house and go a little deeper. Okay, can you tell me more about your housing budget, your life budget? Because I need to understand from a financial perspective what your life looks like. And I want to be able to then, if it's not going to work out, if it's not feasible, is it not feasible today? (10:51): But is it feasible for you to keep the house if these certain conditions fall in line? But more importantly is what is our plan B? If we cannot make it work, not only from a mortgage qualification standpoint, but from a lifestyle standpoint, what is our plan B? And I think too many times they're not having that plan B conversation about what it really looks like. What is the actual cost of keeping that house? There's so many people right now who were fortunate enough to refinance their house during COVID and after COVID, and they have three and a quarter percent interest rates, for example. Right now it's six and a half. They feel like they have this death grip, if you will, on that three and a quarter percent interest rate. They don't want to refinance, they don't want to give it up, but they don't understand there's a cost to keeping that rate. (11:47): For example, their tax filing status is going to change. So keeping that low interest rate may end up meaning that you pay Uncle Sam at the end of the year if you don't have that nice big married standard deduction. There's a lot of different things that we take into consideration when we're trying to put a number, a cost to keeping the house. But I need to understand that person's, their goals, where they are, what's important, not only financially, but life-wise so that we can develop a plan that fits their life and it is sustainable. Katherine Miller (12:25): The point is that when you're thinking of making a decision about the house, but any one financial decision as part of an overall picture, you have to look at the overall picture. And it's one of the things that we say to our clients all the time is that this is an integrative process. What is the waterfall? What are the ramifications, the domino effect of making a decision here and other things that are going to move? And what does that look like at the bottom line? And what are your priorities? What are things you absolutely don't want to give up and things that you have more flexibility about once you start really looking into that? Jody Bruns (12:58): Yeah, I agree. Katherine Miller (12:59): So what do you think are some of the other stories that people sometimes tell themselves about the house during divorce that aren't necessarily true? Jody Bruns (13:06): A common one to me, and it's hard for me to really get this across to the clients, is they think that they're going to be okay today. And within the timeframe where I say I can start to identify that it may become unstable, they have this grandiose plan that things are going to change. My employment is going to continue, salary is going to continue to increase, or I just started in this career, therefore it's going to take off and I'm going to be a better financial standpoint. They make their decisions based off hopes and assumptions, and we can't do that. I think that they misunderstand or they don't give the full context to what the actual cost of maintaining the house. It's not just the mortgage. There's a maintenance expense. I think the average maintenance expense that you should plan on every year is 1% of the value of the home. (14:06): It's the upkeep. If the spouse who's vacating is the one who took care of the property, the maintenance, the landscape, and all of a sudden you're the one that has to do that and you never had the time before or the wherewithal to do it, you don't realize that there's so much more to home ownership that maybe you didn't do. And you can't control taxes going up. You can't control insurance going up. And there's too many uncontrollables. And if you are basing your hope, if you will, of keeping the home and maintaining that stability for you and your children, you are going to be very shocked when you wake up one day and your insurance premium comes back and it's doubled. There's just all of these unknowns out there, if you will. And it takes somebody working with them to really lay it all out, uncover. (15:10): There's a lot of people who, I don't want to refinance. I don't want to pay the equity buyout out of the house. I'm going to liquidate an investment account. It's free money to them. They're not borrowing against it, but they don't take into consideration the opportunity costs that they just gave up by letting this compounding asset - Katherine Miller (15:31): I'm going to stop you there because I want you to lay that out for the listeners who might not necessarily understand what it is you're talking about. Tell it like a story, Jody, so that people can understand what it is you're actually warning against. Jody Bruns (15:42): Let's just use the example of the three and a quarter percent interest rate. Somebody wants to keep that mortgage. They don't want to refinance. And let's say that only the spouse staying in the home is on the mortgage. I won't complicate it with both spouses on it. And let's say it's the mom. The mom is staying in the house and she's got 3.25% interest rate, and maybe there's easy math, 300,000 equity in the house. The vacating spouse wants their 50%, 150,000. She doesn't want to refinance the mortgage because she doesn't want to lose the rate and take the $150,000 equity out of the house to give to the spouse. So instead, maybe they have $150,000 sitting in an investment account with an average return of 7.5%. And if they think, "Well, I'm going to just go liquidate or I'm going to surrender this marital asset, this investment account of $150,000 to satisfy the equity buyout portion." They think in their minds that they're not losing anything because it's not costing them anything to refinance that $150,000. (16:57): When in reality, they're losing the gain of seven and a half percent on that. And if that seven and a half percent return outweighs what you would pay on financing that $150,000, you're giving up a gain. It is costing you that. And when you compound that every year and you don't take into consideration that your mortgage payment, that principal balance is amortizing every year. So one, your investment account would be going up. The balance on your mortgage will be going down, but yet the appreciation on the mortgage is going up. It's a whole analysis. I mean, it's so much more than this is my mortgage payment, this is my income, this is my debt, what can I qualify for? It's a big financial decision around the house. Katherine Miller (17:49): Yeah. And also another thing while you're talking about it is sometimes people will say, "Well, I'll trade off retirement for the house." And retirement, especially if it's pre-tax retirement, that retirement is growing tax-free. That's a huge compounding impact that will really impact you in an older age. As we're talking, I'm thinking about someone who used to live on my block. It was this older woman. She'd grown up in this house, she'd been married, and she lived in this house, but she could not afford to keep it up. And the taxes were going up and she wasn't paying them. And these properties were all built in the 1920s, and they needed work. The roofs needed work, and the windows needed work, and the landscape needed work. So she was just living a smaller and smaller life in this house. And then ultimately she had to sell it because she didn't owe a mortgage on it, but she wasn't paying the taxes and she didn't have the money to, so she sold it to a developer. (18:41): So everybody knew that she'd been living in there kind of in a hoarding situation. It was all filled with stuff except for one little room upstairs. So you came in and you could take a little warren to the kitchen and old warren up to the bedroom. But otherwise, it was just like stuff everywhere. And anyway, the house is beautiful now and it was completely redone. But I just think if you overface yourself and then you don't have a way to get out, that's the worst case scenario. Jody Bruns (19:07): I always liken that to an ostrich. If you're going through a hard time, divorce is a hard time. Financially, et cetera. If you put your head in the sand and you just don't realize that there are people out there who can help, there's a solution for everything. My dad taught me that. There's a solution for everything. And it's sad. I see a lot of times it's in the divorce situation too, where people just put their heads down and they're like, "I don't want to deal with this. It's too emotional. It's too much of a decision." They just don't deal with it. And there are people out there in all phases of the divorce that can help and help you see things from a different perspective. Maybe it's enlightening. Maybe it's you do have a plan B. Katherine Miller (19:56): Divorce Dialogues is brought to you by Miller Law Group. We believe divorce isn't just a legal process, it's a human transition. At Miller Law Group, we help people navigate divorce with dignity, clarity, and respect, focusing on conversations that lead to better outcomes for families. Learn more at miller-law.com. I'm curious if there are situations where people, and sometimes their lawyers just don't understand about mortgages and divorce. What are some of the pitfalls that people might not necessarily see? Jody Bruns (20:34): Mostly in divorce, it's if you are not involving somebody who specializes in divorce mortgage planning, you are negotiating hypotheticals. And assuming that I qualified for a mortgage in the past, I will be able to do it now. Two completely different situations. And I think there's a big misunderstanding on income, number one, what's going to qualify as income, what's not going to qualify for income, because there may be multiple cashflow or income sources coming in from the divorce that are not counted as income for the mortgage. Equalization payments. It is not a form of income from a mortgage standpoint, but it is from me who's receiving that equalization payment every month. Support income. It has requirements. Have you been receiving it long enough for it to count? Are you going to receive it long enough post loan closing for it to count? And just sometimes what's available as a legal option may not be available as the mortgage option. (21:43): And I think that's the misconception is, well, we can do this on a legal standpoint. We can't from the mortgage. I'll give you a really common one. Let's say that once the vacating spouse, that vacating spouse is to pay the spouse staying in the house $5,000 a month in spousal support. And the spouse keeping the house is going to have to refinance. They can't do so until they've received six months proof of receipt, right? Well, in the meantime, the vacating spouse doesn't want a mortgage payment made late because their name's on it. So they agree that, and let's say for easy math, that the mortgage payment is $3,000, that the vacating spouse pays the mortgage of 3,000 and then gives the balance to the retaining spouse until she or he can refinance the house. If they need that $5,000 to qualify, they will never qualify because they've never received the $5,000. (22:47): I call it the netting effect. They net it out. It just creates a vicious cycle. And I understand it in their eyes and in how it's laid out legally in the settlement agreement, it works, but it doesn't work on the mortgage side. They're two different worlds of the legal side and the mortgage side. There needs to be somebody involved that understands what it is the goal and the intent of a settlement, and can we make it work on the housing side? Katherine Miller (23:16): Yeah, I think that's really good. I could see easily how people in negotiating an agreement or lawyers even could just say, "Well, we'll just do it this way because it's a win-win." The mortgage will get paid and the person who is not living there and who's paying support can just be sure that their credit isn't being hurt and all of that. But that the impact of that keeps them stuck in neverland forever. Jody Bruns (23:41): There's other aspects too that I think come into play that nobody takes into consideration. I'll give you an example. It's all about risk. Insurance. Insurance is on the house. Let's say that both spouses are listed as insured. If you read the policies, usually it says that you are a primary occupant of this house. If a vacating spouse leaves and they haven't refinanced yet, maybe they're not going to for six months or a year, and somebody gets injured on the property, the vacating spouse may not be covered. Only the spouse is there. I mean, there's a lot of issues. Not even has anything to do with income, debt or credit scores, but there's aspects of the property itself which may limit access to the equity that's needed to facilitate an equity buyout. It's who's on title. How is title held? There's a lot of risks involved also from a property perspective that are overlooked, and that's no fault on anybody's shoulders. (24:49): As you know, family law attorneys, you guys specialize in family law, not real estate law, not mortgage financing. Every state is different. New York, you can hold title as tenancy by the entirety. Tenancy by the entirety can be held only by a married couple. So what happens the day the court order is entered that you are divorced? Tenancy by the entirety is severed and it defaults to tenancy in common with no right of survivorship. So what happens if a spouse who was not awarded the home passes away before it's refinanced, et cetera? Doesn't mean that their share defaults to the person in the house. It could end up in a probate. There's a lot of legalities that surround the house that are oftentimes overlooked. Katherine Miller (25:36): So when people are getting divorced and they're in the midst of making all of these big financial and other decisions, and they're also so overwhelmed because of this being such a major transition, what do you think, Jody, helps people make more thoughtful housing decisions even despite the emotions? Jody Bruns (25:53): Having a thorough understanding of what's going on. And that's one of the things we do as CDLPs is we provide what's called a divorce mortgage planning report, which is a full analysis. Title, insurance, your plan A, your plan B, all the way from feasibility to sustainability. And I think sometimes it is being able to carve out the emotions of the decision and see how the numbers affect you from a life standpoint and making sure that what your end plan is actually executable and it's sustainable for you not only financially, but emotionally. Because once you are done with the divorce phase, you still have to recover. And we want our clients that we work with to recover from an emotionally healthy standpoint. Katherine Miller (26:44): We only have another couple of minutes here, and at the end of each show, I'd really like to ask my guests to think about a reframe for the listeners. And so a lot of times people come in with a question, how do I keep the house? And maybe having had this conversation with you, maybe the better question is, how do I really create a stable future? So how would you think that changing that question changes the decisions that people make? Jody Bruns (27:10): I think the better question for them is where does the house fit in to my overall future goals? And if they ask, where does it fit in? And they've been working with somebody either on the legal side or counseling side, and they're trying to identify what their life is going to look like post-divorce, asking yourself, where does this house fit in with what I want? And if you look at it from a full financial analysis perspective, maybe it doesn't fit in. Maybe it does, great, but maybe it doesn't. And I think if they don't take the time to realize and put some thought into what post-divorce life looks for them, what it looks like for them, they're not going to really understand where this house fits into that picture. Katherine Miller (28:06): Yeah. I think what I'm hearing you say is actually real security might mean selling. Real stability might mean moving, even though it doesn't feel like that in the moment. Jody Bruns (28:18): Yeah. Letting go sometimes is what you need to do. Katherine Miller (28:20): Yeah. Well, Jody Bruns, thank you so much for being my guest on Divorce Dialogues. It's really been an interesting conversation. Jody Bruns (28:26): Thank you, Katherine. Katherine Miller (28:30): If this conversation was helpful, share it with someone who might need it. And if you're navigating divorce yourself, you'll find more resources and episodes at miller-law.com. Make sure to subscribe wherever you get your podcasts.