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In the case of a home that has increased in value since the couple bought it, refinancing also solves the problem of how to compensate both spouses for that jump in value. Here’s how it would work. Let’s say that the couple bought the home for $100,000, and it is now worth $200,000. By refinancing, the spouse who is keeping the house could take out a larger mortgage and give the other spouse some of the proceeds, based on their agreement in the divorce settlement.
In our example, the spouse retaining possession might take out a $50,000 loan and give it to the other spouse as his or her half of the increase in value. If you want to use this approach, it’s important to consider whether the spouse who is keeping the home can qualify for and make payments on a larger mortgage.
Many of life’s turning points involve complicated financial planning and decision-making. Your local CPA can help. Turn to him or her for advice on any of the financial problems facing you and your family. In addition, the CPA profession’s 360 Degrees of Financial Literacy program provides information on other issues related to divorce and money. Visit the “Couples & Marriage” section at www.360financialliteracy.org to fins out more.
To listen to podcasts with more financial tips, go to http://www.calcpa.org/Content/community/financialempowerment.aspx.