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New loan type could ease divorce concerns for some spouses

For many divorcing spouses, the primary concern is keeping the family home. Many people have a great deal of time, effort and money invested in their houses, and there are some who are willing to do almost anything to retain the properties during divorce. Unfortunately, retention might not be an option for some in Alabama. A new type of lending product currently being considered by British lenders could change that reality, and many American spouses are waiting to see if the "divorce mortgage" seems likely to cross the Atlantic.

When a couple has built up a significant degree of equity in a home, that equity must be divided during the property division process. This is usually accomplished when the retaining spouse cedes his or her interest in other assets to the departing spouse. However, when there are few assets other than the home, the party who wishes to retain the family home is placed in a difficult financial position.

A "divorce mortgage" would ease that position by providing the borrower with a lump sum that would be used to buy out the other spouse. In addition, money would be placed into a special savings account, from which the initial loan payments would be drawn. That would give the borrower the financial breathing room needed to make budget adjustments following the divorce.

This type of loan is not a good fit for everyone. In order to be a wise choice, the party who will retain the home must have a steady and reliable source of income. For some in Alabama, however, this type of loan could be just what is needed to allow one spouse to keep the home while the other can cash out of the property during a divorce. If the loan product becomes successful overseas, American lenders may soon offer a similar lending option.

Source: Forbes, "How The 'Divorce Mortgage' Could Help Older Homeowners", Richard Eisenberg, June 1, 2016

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