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In divorce agreements, it is common to see language such as:

“Spouse A shall refinance the mortgage within 90 days and remove Spouse B from liability.”

On paper, that sounds simple.

In practice, it often fails.

As mortgage professionals working alongside collaborative attorneys and financial neutrals, we regularly see well-intended refinance provisions unravel — not because someone refuses to cooperate, but because the refinance was never financially viable under lending guidelines.

The Most Common Reasons Divorce Refinances Fail

  1. Debt-to-Income Ratios Don’t Support the Loan

Post-divorce budgets differ dramatically from pre-divorce budgets.

Even if the payment appears affordable on a cash-flow worksheet, mortgage underwriting follows strict debt-to-income ratios that may produce a different result.

  1. Self-Employed Income Is Calculated Differently

This is one of the most misunderstood areas in divorce planning.

Attorneys and financial professionals often evaluate income based on gross business revenue or owner draws.

Mortgage underwriting does not.

For self-employed borrowers, we use:

  • Net income after expenses
  • Add-backs (when allowable under guidelines)
  • Two-year averages (in most cases)

This can significantly reduce qualifying income compared to what appears on a tax return summary or financial affidavit.

A refinance that seems feasible using gross income may not qualify when evaluated using underwriter-calculated net income.

  1. Support Income Is Not Yet Usable

For conventional and VA financing, lenders typically require:

  • A documented history of receipt (often six months)
  • Consistency
  • Three years of continuance from loan closing

If deadlines are set before those requirements are satisfied, the refinance may be structurally impossible.

  1. Equity and Reserve Requirements

Buyout structures increase loan balances.
Loan-to-value limits may restrict options.

Additionally, many programs require post-closing reserves. Asset division during divorce can unintentionally eliminate the liquidity required for approval.

The Collaborative Opportunity

Refinance provisions fail not because of bad intent — but because mortgage feasibility wasn’t analyzed early enough.

A pre-settlement underwriting review allows the team to:

  • Set realistic timelines
  • Structure viable buyouts
  • Identify alternative options
  • Avoid post-decree surprises

Case Study

We had a client that was getting ready to sign the divorce decree…it was a collaborative case.  The client sent the decree to me prior to signing.  Upon review we noticed that the total income would not support the refinance.   In this case the divorce client was also getting support payments for a total of 10 years.  We were not far off…the solution was to front end load some of the support payments and reduce the overall term of the payout.  The attorneys and the client reviewed the suggestion and were able to make the numbers work and the client was able to get the home refinanced and complete the divorce.

Mortgage strategy integrated early strengthens the durability of the final agreement.

About the Author

Dave Jamison is a divorce mortgage strategist and co-owner of Rainbow Mortgage Inc., an independent mortgage brokerage licensed in Minnesota, Florida, and North Dakota. With more than 26 years in residential lending—including 13 years as an underwriter for Fortune 500 mortgage institutions—Dave brings deep, practical expertise to complex divorce-related real estate matters.

What sets Dave apart is his underwriting foundation. Rather than approaching cases from a sales perspective, he evaluates them through the lens of how loans are actually approved—income calculations, debt ratios, reserve requirements, and documentation standards. This allows him to assess feasibility early in the divorce process, helping prevent refinance provisions that later fail and ensuring agreements align with real-world lending guidelines.

Dave and his wife, Gale, founded Rainbow Mortgage Inc. in 1999, initially serving borrowers with complex financial situations. In 2004, he began specializing in divorce mortgage planning, applying his expertise to support attorneys, mediators, and financial neutrals. Since then, he has spent more than two decades helping collaborative teams structure realistic refinance timelines, evaluate buyout options, and avoid post-decree mortgage breakdowns.

He is particularly skilled in analyzing self-employed income, support income, and multi-property scenarios—areas where legal and financial assumptions often diverge from underwriting standards. Known for his calm, direct, and non-adversarial approach, Dave provides clear, objective guidance that supports durable agreements.

David Jamison
Rainbow Mortgage, Inc.
E: dave@rainbowmortgageinc.com | Ph: 952-405-2090
www.RainbowMortgageInc.com

 

 

 

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People sometimes tell me they’ve heard that collaborative divorce works better for the higher income spouse. The idea is that the person with more money will always have more influence, more control, and more options. If you earn less than your spouse, it can feel risky to choose a process that depends on cooperation.

I understand why that fear exists. Money shapes how we move through life. It can affect your confidence in negotiations. It can make you wonder if the other person can simply wait you out until you accept less than what is fair.

In my work, I have seen that a carefully managed collaborative divorce can protect a lower income spouse in ways the court process often does not.

Why This Concern Feels Real
In many marriages, one person earns significantly more than the other. When the marriage ends, the higher earner may have more savings, more credit, or more financial stability. They may feel less urgency to resolve things quickly. The lower earner may feel pressure to settle just to get financial relief.

These are valid worries. They do not disappear automatically in a collaborative case. But collaborative divorce was designed to address them directly.

How Collaborative Divorce Addresses Power Imbalances
The process starts with full financial transparency. Both spouses share all the information about income, expenses, assets, and debts. There is no hiding documents, no drawn-out discovery requests, and no costly legal fights just to get basic facts.

A neutral financial professional is part of the team. They work for both spouses and explain financial details in plain language. This means each person understands what different settlement options will mean for their future.

Collaborative teams can make interim financial agreements early on. If one spouse needs support for housing or daily expenses during the process, the team can create an agreement right away instead of waiting for a court hearing.

Because communication is at the heart of collaborative work, there may often be coaches involved. These professionals help keep discussions respectful and balanced. They make sure one voice does not dominate the conversation.

Why Litigating Attorneys May See This Differently
Attorneys who primarily work in litigation sometimes see collaborative divorce through a different lens. In court, the higher income spouse can be ordered to produce documents, attend hearings, and even pay temporary support early in the case. Judges have authority to make rulings and set deadlines. To a litigator, those built-in powers of the court can feel like stronger protection for the lower income spouse.

From that perspective, collaborative divorce may seem risky because there is no judge to issue immediate orders. Litigators worry that without the authority of the court, a higher income spouse could slow things down or refuse to cooperate.

These concerns are not unfounded. In a collaborative case, if one spouse refuses to participate in good faith, the process can break down. That is why collaborative professionals screen cases carefully. If there are signs that one person will withhold information or use the process to stall, collaborative may not be the right fit.

When Collaborative Practice Works Better
Using a collaborative process can give the lower income spouse more control over their future than litigation. Court processes can be slow and expensive. The higher income spouse can afford to keep paying legal fees, while the lower income spouse may feel pressured to accept a deal to stop the financial bleeding.

In Collaborative, both spouses commit to full disclosure, respectful communication, and problem-solving. The team addresses immediate needs quickly so that neither person is left in crisis. Instead of spending time and money on court battles, the focus stays on building an agreement that works for both people.

Collaborative divorce is not fair just because of the name. Fairness comes from the professionals involved and their willingness to slow down, explain every option, and make sure each person understands what they are agreeing to. The team’s role is to keep the process balanced so that neither income level decides the outcome.

Litigating attorneys and collaborative attorneys sometimes see fairness through different frameworks. Both want to protect their clients. Both see situations where the other process might fail. What matters most is choosing the process — and the professionals — who will make sure your needs are met and your voice is heard.

For a lower income spouse, collaborative practice can be a place to get stability, clarity, and a say in what comes next. With the right team and safeguards, it can be a path to a fair resolution without the costs and strain of a courtroom battle.

About the Author

Angela is a former President and board member of the Minnesota Collaborative Law Institute. She has a solo practice where she focuses primarily on collaborative law and out-of-court settlement processes.  Through her work, she aims to empower individuals to make informed decisions while reducing conflict, cost, and emotional stress.  She helps clients navigate complex transitions with clarity and compassion.

Angela is a former President and board member of the Minnesota Collaborative Law Institute. She has a solo practice where she focuses primarily on collaborative law and out-of-court settlement processes.  Through her work, she aims to empower individuals to make informed decisions while reducing conflict, cost, and emotional stress.  She helps clients navigate complex transitions with clarity and compassion.

Angela Heart, Family Law Attorney
Heart Law, LLC
E: Angela@heartlaw.net | Ph: 651-337-1333
Website: https://www.heartlaw.net/

 

 

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A qualified domestic relations order (QDRO) is not to be confused with a divorce decree or property settlement agreement. A QDRO specifically recognizes a spouse, former spouse, child, or other dependents’ right to receive a predefined portion of a qualified ERISA-sponsored retirement plan. A QDRO must be issued by a state court or authority.

To “qualify” as a QDRO under the Employee Retirement Income Security Act (ERISA), a QDRO must have (or not):

  • The name and last known mailing address of the participant and each alternate payee;
  • The name of each plan to which the order applies;
  • The dollar amount or percentage (or the method of determining the amount or percentage) of the benefit to be paid to the alternate payee;
  • The number of payments or time period to which the order applies;
  • The order must not require a plan to provide an alternate payee or participant with any type or form of benefit, or any option, not otherwise provided under the Plan;
  • The order must not require a plan to provide for increased benefits (determined on the basis of actuarial value);
  • The order must not require a plan to pay benefits to an alternate payee that are required to be paid to another alternate payee under another order previously determined to be a QDRO; and
  • The order must not require a plan to pay benefits to an alternate payee in the form of a qualified joint and survivor annuity for the lives of the alternate payee and his or her subsequent spouse.

With that, a QDRO must also “qualify” under the terms and conditions of the specific retirement plan. All retirement plan is different, and some have unique terms and conditions such as annual vs. daily valuations dates, ROTH contributions, frozen benefits, vesting requirements, shared vs. independent options, survivors benefits, and timing requirements.  Each retirement plan is required to have written QDRO procedures and model language available to Participants upon request but watch out! The model language is designed to protect the interests of the Plan, not the Participant, and never an Alternate Payee.  It is suggested you understand the terms and conditions for each account along with the ERISA requirements above, prior to any agreements or the decree language being drafted.

It should also be noted that QDROs are not specific to divorce.  A QDRO can be used in several other circumstances including child support, past-due arrears, or even in other court jurisdictions where the circumstances may warrant a non-taxable transfer to a spouse, former spouse, child, or dependent.  As long as a state Judge or court commissioner will sign the QDRO, it must be deemed “qualified” under the terms of the plan assuming it meets all of the requirements above.

It can be well worth the time and money to consult with a retirement plan specialist as soon as you identify the need for a Qualified Domestic Relations Order.  For more QDRO tips continue to follow our blog or contact Michelle Leisen at Divorce Smart anytime.

Michelle founded Wealth Planning Group, LLC after 22 years of experience in the Financial Services Industry. Michelle graduated from the University of Minnesota,Tewin Cities and attended William Mitchell School of Law in St. Paul, Minnesota. Born and raised in Minnesota, Michelle lives in Eden Prairie with her two children Katie and Nick. Michelle enjoys volunteering and family and running races.

Divorce Financial Professional/Mediator
Divorce Smart LLC
michelle@wealthplanninggroupmn.com | 612-419-9956
www.wpgdivorcesmart.com

 

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tax imageIt’s important for divorcees to review and adjust their W-4 payroll withholding or start to make quarterly tax estimates following their divorce. Often, they are so relieved to have reached settlement, they fail to think about these housekeeping items. If divorced in 2018, this is especially important if transferring taxable spousal maintenance. The payor spouse can likely change their payroll withholding to increase their net income. The payee spouse will need to withhold additional tax dollars on their salary or make quarterly estimated tax payments, to account for taxes on the spousal maintenance payments received. If the payor spouse doesn’t adjust their W-4, they may not be able to meet their budget during the year and would probably receive a large tax refund when taxes are filed. If the payee spouse doesn’t adjust their W-4 or start quarterly estimated taxes, they could have a large tax liability when they file their return. Even if there isn’t taxable spousal maintenance, individuals still may need to adjust their withholding. Things that can impact taxes and often require an adjustment are a change in their filing status, pre- tax payroll deductions (retirement contributions, health savings account, health insurance premiums), and itemized deductions such as real estate taxes and mortgage interest. Making these adjustments now will help cash flow match what was projected during the divorce process and save the headache later of a tax surprise.
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TaxAs we move into 2019, it’s helpful to know contribution limits and Social Security changes. Individual Retirement Accounts: The annual contribution limits for traditional and Roth IRA’s have increased to $6,000, a boost of $500 over 2018 contribution limits. The catch-up contribution limit for those age 50 and older remains at $1,000. 401(k)s: The annual contribution limits for 401(k)’s, 403(b)’s, most 457 plans, and the federal government’s Thrift Savings Plan have increased to $19,000, a boost of $500 over 2018 contribution limits. The catch-up contribution limit for employees age 50 or older in these plans stays at $6,000 for 2019. SIMPLE IRA: The limit for SIMPLE IRA’s goes up from $12,500 in 2018 to $13,000 in 2019. The catch-up limit remains the same at $3,000 for those age 50 and older.  Health Savings Accounts: The “self-only” annual contribution limit will increase from $3,450 to $3,500 and the “family” annual contribution limit will increase from $6,900 to $7,000 in 2019. Social Security Updates:
  • Beneficiaries will see a 2.8% increase in payments
  • Maximum taxable earnings will increase to $132,900
  • Maximum benefit at full retirement age increases to $2,861 per month
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clockIt is important to review and discuss tax planning for the year in which a divorce was completed, especially for high earning individuals who receive incentive compensation and plan to be divorced by December 31, 2018. As part of the 2017 Tax Cuts and Jobs Act, many tax law changes became effective in 2018. One change was to the flat tax rate that is withheld by companies on incentive income such as bonus income, commission income, exercised stock options, and vested restricted stock. As of January 2018, the federal rate changed from 25% to 22%. The Minnesota state rate remains the same at 6.25%. Most highly compensated individuals have marginal tax rates above 22%, so tax on the above income types is under-withheld. To avoid an unpleasant tax surprise come April 15th, be sure to address this potential additional tax liability and come up with a plan to handle it. Some options to consider are:
  • Estimate the tax liability now and include and allocate it as part of the property division.
  • Include language to share in the tax liability when return(s) are filed next year.
  • Consider whether it makes sense to load-up itemized deductions from the year to the higher earning spouse to help offset liability (i.e. real estate taxes, mortgage interest, charitable contributions).
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Amazon box manOne of the reasons that divorce is such a challenging life transition is its public nature. A couple might keep their problems private as they try to work through them. But if a rift opens that can’t be mended, the couple will have to share some very difficult news with friends and family as they separate from one another. Few of us will have to reveal emotional personal issues to as wide an audience as Jeff and MacKenzie Bezos recently did. The statement that Jeff released on Twitter suggests that he and MacKenzie are trying to make their split as amicable as possible by usin three insightful ideas that could help anyone struggling through a divorce.
  1. Be open and honest with those closest to you.
“We want to make people aware of a development in our lives. As our family and close friends know, after a long period of loving exploration and trial separation, we have decided to divorce and continue our shared lives as friends.” Couples need privacy as they deal with strains on their marriage. But once a decision is made, clear communication with your family, friends, and each other will be very important. That goes double if any young children are in the picture. The more open a couple is about what’s happening, the easier it will be for you to find the outside support that will help you through this transition. Good dialogue might also help you and your former spouse to focus on the essential tasks at hand, like dividing your assets and updating your essential estate planning documents.
  1. Be grateful.
“We feel incredibly lucky to have found each other and deeply grateful for every one of the years we have been married to each other. If we had known we would separate after 25 years, we would do it all again.” Shame, embarrassment, and guilt are common feelings associated with divorce. Playing the blame game or trying to “win” the divorce can quickly turn all those amicable best intentions into bitter personal and legal issues. Instead, the Bezos statement is a reminder that the end of a marriage – especially a long one – doesn’t erase all of the positive things that came before it. If an amicable divorce is possible in your particular situation, then don’t be ashamed or embarrassed. Cherish those precious shared experiences, like the birth of children, happy vacation memories, the difficult times you helped each other through. Embracing these feelings of gratitude will help ease both you and your partner through this process.
  1. Focus on the positives ahead.
“We’ve had such a great life together as a married couple, and we also see wonderful futures ahead, as parents, friends, partners and ventures and projects, and as individuals pursuing ventures and adventures.” When we work through the $Lifeline exercise, we emphasis that important transitions like retirement, children graduating, weddings, and yes, divorces, are ends in one respect, but also new beginnings. They’re the start of new chapters in your life. That might be difficult to see when the pain of a divorce is still raw. But it’s important to open yourself up to new opportunities when they present themselves. You’re about to start your single life all over again. And yes, it’s scary. It may not be what you wanted. And you may be bitter. But over time, you may be able to see what awaits you on the other end. It could be traveling that you’ve longed for. Maybe you’ll relocate, start a new career, begin new hobbies, and meet new people. You might have more financial resources at your disposal to explore solo than you did when you were younger and unmarried. And you might approach these experiences with a more mature and grateful perspective, enjoying every minute just a little bit more fully. We want to help you through all of life’s major transitions, the positives as well as the challenges. If there’s change on the horizon, make an appointment to come in and review the $Lifeline exercise with us. We can help you plan ahead so that the next chapter of your life is the most fulfilling yet.
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Checklist and pen When a joint investment account is divided, the financial institute will use only one Social Security number to report the earnings and thus only one 1099 will be issued for that account. For example, following their divorce, Dick and Jane divided their joint investment account and transferred their own share into an individual investment account solely in their own name, on November 1st. If the “primary” Social Security number on the joint account is Dick’s, he will receive one 1099 for the joint account earnings earned from January 1st– October 31st and a second 1099 for the individual account earnings earned on his individual account from November 1st – December 31st. And, Jane will receive only one 1099 for the individual account earnings earned on her individual account from November 1st – December 31st. If the goal is to share the tax liability for the joint investment account earnings, this can be accomplished in a few ways.
  • The tax liability is projected during the divorce process and an adjustment is worked into the property division.
  • The spouse who received the 1099 adds the investment income to their tax return and language is added to the decree outlining the agreement on how to share the tax liability at tax filing time.
  • The spouse who received the 1099 can “nominee”the correct portion of investment income to the other spouse by filing a 1099 and 1096 with the IRS and furnishing a 1099 to the other spouse.
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doctor w piggy bankIt’s that time of year again, when the trees become bare and days grow short, that one’s thoughts turn to health insurance. That’s right, the open enrollment window for renewing your existing health insurance plan or shopping for a new plan opens November 1st and runs through December 15th, 2018. For Minnesota residents, shopping for insurance means contacting a health insurance broker to get help in comparing different plans. Or, for those whose income qualifies them for financial help, applying and enrolling on the MNSure website. For those who live in states without their own exchange, plans can be compared on HeathCare.gov, the federal government’s national exchange site. Choosing the right health insurance plan depends on your family’s health and understanding which cost-sharing arrangement works best for you. The cost-sharing arrangement is how much you want to pay monthly for the insurance premium plus how much you are comfortable paying out-of-pocket for a doctor’s visit or medical procedure. You can pay less on a monthly basis for your premium if you are willing to pay more out of pocket for a doctor’s visit or medical procedure. The most prominent cost-sharing component is the plan deductible. This is the amount you pay every year before the insurance company pays its first dollar. Choosing a lower deductible amount and pushing the costs onto the insurance company sooner will result in a higher premium. By choosing the maximum deductible allowed, $7,900 for individual plans and $15,800 for a family plans in 2019, you will pay a lower monthly premium. Picking a high deductible plan with a lower premium may make sense for a healthy person who never needs health services, as well as someone comfortable with paying the out-of-pocket amount. Other ways that insurance plans share the cost is with co-pays and coinsurance. A copay is a fixed dollar amount that you pay every time you visit the doctor. That amount may be $30 with a typical insurance plan but it will be lower or possibly waived for a more expensive plan. Coinsurance is where the cost of a medical procedure is shared. The typical coinsurance arrangement kicks in after you meet the deductible amount. Then, you pay 20%, for example, of costs until you reach the maximum out-of-pocket limit amount. Finally, the out-of-pocket limit is the maximum amount that you will pay. It is the sum of the deductible plus the copays or coinsurance that you pay in any given year. Once you hit this limit, the insurance company pays 100% thereafter. This amount is established each year by the government as part of the Affordable Care Act. As noted above, for 2019, the maximums are $7,900 for individual plans and $15,800 for family plans. Once you understand how cost-sharing works, the cost difference between plans comes down to the services and prescription drugs that the plans cover. All plans are required to cover emergency services, hospitalization and maternity care, as well as mental health and substance-abuse treatment, at a basic level. All plans also cover the cost of an annual check-up and preventive care services (such as immunizations and mammograms) with any level of deductible. More expensive plans will also cover a greater level of preventative services, and higher levels of service, such as brand name drug coverage instead of generic-only drug coverage. So, as you rake up the leaves and pull out the winter coats, take time to review your health insurance plan because health insurance season will soon be here!
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architecture-family-house-front-yard-106399It goes without saying, but I’ll say it anyway…divorces are complicated! There are many questions that an experienced mortgage professional can help answer before you finalize your divorce. For example: Can one of us afford the family home or do we need to sell it? Will I have enough income to qualify for a mortgage after the divorce? Is my credit score good enough to qualify? Will I have enough assets to refinance or purchase a new home? Do I have the right job and/or job history for mortgage qualification? What’s my home worth? Will the family home appraise high enough to pull out equity to cover the cash I owe my spouse, or do I need to pull funds from another source? What’s the consequence if my Ex-spouse keeps the home but can’t refinance it into their name after the divorce? What’s the best loan for me post-divorce? Attorneys are not mortgage experts and there are many nuances in the mortgage world that can totally derail the perfect divorce settlement. Rainbow Mortgage Inc. takes a very proactive role in assisting our attorney friends and their clients in making sure their post decree housing goals are met. We help you to (1) make realistic decisions about what is possible, (2) understand your loan options, and (3) structure a mortgage loan focusing on your post-divorce goals. We are happy to help you by participating in client-attorney meetings to discuss potential initial options, provide revised options (if necessary) prior to the final signing of the decree, provide an estimate of what your home is worth using our AVM tool (which is the same tool used by lenders to evaluate whether a value on an appraisal is reasonable) and at no cost to you or your attorney, review the decree prior to it being sent to the judge. Here are a few examples of items in a divorce decree that have caused client issues in the past: (1) The length of time that a person is to receive support payments does not meet lender guidelines to qualify for a mortgage loan. Different loans have different guidelines however, standard guidelines require that a borrower prove that they will receive the income for a minimum of three years following the funding of the mortgage loan. The dates listed in the decree must be carefully monitored and possibly adjusted if the divorce process goes on for an extended period before it’s finalized. (2) Child care expenses are being shared and the decree lists a payment that is to be made monthly to a specified bank account- underwriters will sometimes consider this child support which can throw off a person’s monthly budget causing them to no longer qualify for a loan. Divorces are complicated but the mortgage doesn’t have to be with the right professionals in your corner. We can offer you the help you need and why wouldn’t you take it? Contact us for a FREE consultation and decree review. We only get paid when you are happy with our service and your loan closes. It’s a Win-Win for you!