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Divorce is challenging for any couple, but military families face unique complexities, especially when it comes to real estate and VA loans. Whether you’re an active-duty service member/veteran or the spouse of one, understanding how VA loan entitlements and property division work is essential for a smooth transition.

Key Challenges in Military Divorces

  1. Handling VA Loan Entitlements
    • VA loans are a valuable benefit for military families, the most common benefit is the ability to borrow 100% of the purchase price a home. VA loans are tied to the service member’s entitlement. VA loan entitlement is the amount of money the VA will guarantee to the lender who granted the VA home loan in case of default by the veteran. It also determines the amount a veteran can borrow before needing a down payment.
    • In a divorce, to restore the departing veteran spouse’s entitlement, the spouse who retains the marital home, must either refinance the mortgage into a non-VA product, if a non-veteran, or assume the loan if a veteran using their entitlement.
  2. Equity Buyouts
    • If the veteran spouse keeps the home, an equity buyout is often necessary. VA loans do not have special provisions for buyouts, they are considered cash-out refinances, meaning paying off additional debt can be added to the new loan without impacting interest rate, like it would with conventional and FHA financing.
  3. Remaining VA Entitlement
    • If the non-veteran spouse arranges a simple assumption on a VA loan, the veteran’s entitlement will remain tied to the loan until it is fully paid off, potentially limiting future VA loan use, but not eliminating it. Because the VA loan is based on entitlement it is possible to have more than one VA loan at a time. Each scenario is different however, it is common for the departing veteran spouse to use their VA home loan benefit to purchase a new home post-divorce.
  4. Legal and Financial Protections

Case Study: A Military Divorce in Troy

Scenario:
A veteran and their non-veteran spouse were divorcing in Troy, Michigan. The couple owned a home purchased with a VA loan. The non-veteran spouse wanted to retain the home, but the veteran spouse was concerned about losing their VA home loan benefit.

Challenges:

  • The spouse lacked sufficient income to refinance the VA loan into a conventional product.
  • The veteran thought the needed to free up their entitlement to purchase a new home after the divorce.

Solution:
As a Certified Divorce Lending Professional, I:

  1. Explored Assumption Options: Worked with the VA loan servicer to confirm the non-veteran spouse could not assume the loan and restore the veteran spouse’s entitlement.
  2. Secured a Temporary Agreement: Drafted a plan to maintain joint ownership for one year, giving the spouse time to increase income and qualify for a refinance.
  3. Clarified Entitlement Impact: Provided detailed documentation to both parties about how the service member’s entitlement would remain tied to the loan until it was refinanced or paid off.

Outcome:
The spouse refinanced the home a little less than a year later, maintaining stability for their children. The departing veteran spouse still had remaining entitlement, which allowed him to purchase a new home using a VA loan with no down payment. In case you are wondering, since the marital home was awarded to the non-veteran spouse in the divorce, the monthly payment on the existing VA loan is considered a contingent liability and not counted in the veteran’s debt ratio/mortgage qualifying even though it is still outstanding.   

Michigan-Specific Insights

  • Military Divorce Rates: Michigan’s strong military presence, 460,000 veterans live in Michigan as of 2022 according to usafacts.org, means many Michigan families face these unique challenges during divorce.
  • Property Tax Exemption – Veterans in Michigan with a 100% service-connected disability rating are exempt from paying property taxes on their primary residence. You will need to provide evidence of your disability rating to your municipality and complete a form annually to maintain your exemption. Here is the link to the State of Michigan’s website to learn more.
  • Local Expertise: Working with a local CDLP ensures your decisions align with VA lending guidelines and your overall financial and housing goals post-divorce.

Conclusion

For Divorcing Military Families:
Are you navigating the complexities of a military divorce? Whether you’re retaining the home or exploring VA loan options, I can help you make informed decisions. Contact me for a free consultation to protect your financial future.

For Family Law Professionals:
Partner with a Certified Divorce Lending Professional to provide your military clients with specialized guidance on VA loans, entitlements, and property division. Together, we can ensure fair and efficient outcomes.

Posted in Divorce Mortgage Planning, Loan Programs, Military & Veterans