4sale by divorce january 2017

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A B R , A S P , C D PE , C R S

4S ALE BY D IVORCE January 2017 Issue

D ID YO U KNOW??

FREE Credit Reports Many times, divorcing clients will provide their attorneys with a list of their existing debt; however, the safest way to make sure no debt is overlooked, is to obtain Independent credit reports for both divorcing parties.

In 2003, Congress passed the Fair and Accurate Credit Transaction Act as a way to address identity theft. FACTA is an addendum to the Fair Credit Report Act. Under the FACTA, consumers have the right to request one free copy of their credit report ANNUALLY from all three bureaus: Experian, Equifax and TransUnion.

Congress also created a website where consumers can order all three reports in one place: www.annualcreditreport.com Tip: Advise clients to pull one bureau every 3-4 months as a way to monitor their credit for free on a constant basis.

Managing Credit Through Divorce Not only can divorce lead to emotional strain, it can also cause all sorts of financial problems. All those shared accounts and co-signed loans that once seemed so romantic are now the cause of major issues.

I have worked with many clients during and after a divorce where the divorce was allowed to take it’s toll on their credit history. Advising our mutual clients on how to move forward and how working together to protect their credit files can be very rewarding yet is often overlooked. These credit issues have affected all ranges of clients of mine. Some issues arise out of financial crisis while others have arisen out of spite—leaving the hurt spouse at a complete disadvantage. Recently I was working with a client to refinance her home which would have lowered her monthly expenses by $600. However, upon pulling her credit file, the ex-husband stopped making the mortgage payment right before the divorce was final and she was to take over. Fortunately, she was able to correct the situation but because of the recent mortgage late on her credit file, she had to wait 12 months prior to refinancing—that’s a $7,200 penalty to her from her ex-husband. I thought it would be helpful to identify some great information regarding the mystery of the FICO score this month and hope it will be helpful information to pass along to your clients.

ADVISING YOUR CLIENTS ON CREDIT Don’t assume your clients will always play nice and don’t assume they fully understand what happens with their credit during the divorce. When joint credit is obtained, a contractual agreement is made to pay the bills. A divorce decree doesn’t change that contract. When clients divorce—each spouse remains fully liable for all joint debt as well as their new independent debt.

There are ways to prevent credit obligations from making divorce more difficult and re-establish independent credit lines:    

Phillip H. Lande RE/MAX Legends Group/ Atlas Group Direct: 317.863.2356 plande@atlasrealty.com www.remax-atlasgroup.com

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Communication between soon-to-be-ex-spouses.

Ask each company and bank that extended joint credit to transfer the debt to the name of the person who will be responsible.

Keep joint bills current—even missed payments made years after the divorce will be reported for all individuals associated with the account.

Ask the credit grantor to remove a spouse who is only an authorized user or close the joint account to additional charges.

Advise creditors that one spouse is not responsible for debts charged by the other spouse on joint accounts after the divorce.

Close as many joint accounts as possible.

Failure to make a clean separation of debt and obligations can haunt both clients well after the divorce is final.

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Understanding your Credit and the Factors that Influence It.

While the majority of clients I work with have an understanding of credit, unfortunately there are still clients who’s spouse ‘took care of all that stuff’ and they truly do not have the experience of working with credit and bill paying. This goes without saying; however, the majority of times this spouse was the wife. Understanding the makeup of your credit score is the first step towards managing and improving it.

As you might expect, payment history is the most influential component and this is followed closely by the amounts you owe.

To lesser degrees, the length of time that you’ve utilized credit, the number of new accounts or inquiries that you may have and the various types of credit accounts that you hold will also have an impact on your score.

The overall importance of any of these factors can be further influenced by the entirety of the information contained in your report. As such, certain patterns, occurrences or items can be measured differently dependent on any other factor or combination. There can be great complexity in the way that the scoring formulas work and it’s for this reason that they are difficult to assess.

Managing your credit prudently will include the obvious, yet at times, the opposite is also true. In an effort to effectively manage your credit scores, always try and remember the following: 1. Have and follow a system to assure that your bills are always paid on time.

2. Avoid late payments or the excessive use of credit by establishing and maintain a cash ‘cushion’ to pay for unexpected expenses or repairs. It’s actually better to have a high credit limit with a low balance than to ‘max out’ your cards.

3. Never close old accounts as the age of these can actually help and if you shop for credit, keep it to the shortest time period possible so that multiple inquiries are not counted against you.

4. You need to have credit experience to have a credit score so don’t be afraid to use it, just be sure to keep it within your means.

5. If you have established credit, don’t open new accounts solely for the sake of earning a discount on your purchases as in the long run, this can cost you much more in higher interest rates than you may save upfront.

6. As well, too many accounts means too many payments and this increases both the task of making those payments along with the possibility of missing one.

If at all possible, it is advantageous for both spouses to work together in maintaining existing credit histories. There are numerous opportunities to maintain strong credit through the divorce and take into consideration the above graph i.e. rather than closing a long standing joint credit card, work with the creditor on removing the spouse that will not be liable for the debt. Length of time established is a key component of credit scoring. If one spouse is just an authorized user, simply remove that spouse’s authority allowing the card to remain open. Please don’t hesitate to contact me with any questions or for more information to have available for your clients.

www.remax-atlasgroup.com

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Credit scoring formulas and the resulting ranges into which we fall are constantly changing. The long term averages listed above are currently more heavily weighted to the low end with more than 25% of the population now bearing a score below 600. Change comes with economic cycles, continual analysis and refinement of algorithms used and even as a direct result from attempts to subvert the system.

Like the secret recipe for Coca-Cola, few will ever know all the ingredients, yet knowing the fundamentals will help establish and maintain a healthy and legitimate score. With tighter guidelines on loan programs, insurance and even employers now relying on credit scores for employment decisions, it’s never been more important to be prudent about this subject matter.

Avoiding Mortgage Late Pays A good credit score is important for more reasons than just obtaining new credit. Opportunities and needs come up sometimes when we least expect them. Allowing a payment to be made late is not something that we can readily fix after the fact as little other than time will decrease the negative impact. Since we can’t speed up time, this leaves prevention as the one sure remedy. Here is an example of how missing a mortgage payment can affect your credit scoring.

Remember my client who’s husband didn’t inform her he stopped making the mortgage payment? It not only affected her credit but because of the lending guidelines with regards to mortgage late payments, she was forced to wait the 12 months prior to refinancing. If you have clients who in the divorce settlement agreement have agreed that one spouse will refinance another’s name off of the loan or refinance for an equity buyout, how they handle their credit can play a significant role in the ability to comply or not.

www.remax-atlasgroup.com

Phillip H. Lande ABR, ASP, CDPE, CRS RE/MAX Legends Group/ Atlas Group 5645 Castle Creek Pkwy N Indianapolis, IN 46250 www.remax-atlasgroup.com plande@atlasrealty.com Direct: 317.863.2356

As professional real estate agents specializing in helping divorcing couples, we are here to help both parties involved through a smooth yet emotionally difficult process when they need to sell the marital home and purchase new homes moving forward.

As a member of your professional divorce team, our goal is to: 1. Help clients understand the legal and tax aspects of divorce in regards to the sale of the marital home and other real estate.

2. Offer alternatives to the usual mistrust and the emotional responses as a result of dividing real estate assets.

3. Work with both parties together to help them save and make money now and down the road with regards to real estate.

4. Work with both parties, not just one, in selling the marital home for the best price.

Please don’t hesitate to call us if we can be of service to you and your divorcing clients!

R E A L E S TAT E

S T R AT E G I E S FOR DIVORCING COUPLES

With the divorce rate stable at fifty percent and home ownership at sixty-two percent, there are a lot of families who need professional guidance as they navigate what to do with their home. For most people their home is the largest asset they own, so the decision must be carefully thought out and analyzed. Now more than ever a full time local Realtor must provide professional guidance. This is not the time to take the real estate advice of family, friends or other

professionals. While your legal adviser or family member who lives in another state means well, real estate still remains local, particularly with our mercurial national market.

The sale of the marital home is not an isolated decision. There are short and long term financial, emotional and tax consequences. A Realtor, preferably one who specializes in divorce, can offer the best guidance regarding the marital home. They must understand that they will work in tandem with other professionals for the best customized outcome.

The goal should be a client that has their individual needs met and is making informed decisions from a knowledgeable place.

This is for informational purposes only and not for the purpose of providing legal or tax advice. You should contact an attorney or tax professional to obtain legal and tax advice. Not a commitment to lend.

Copyright 2017 All Rights Divorce Lending Association, LLC The information contained in this newsletter has been prepared by, or purchased from, an independent third party and is distributed for consumer education purposes.