The Legal Zone (S3:E4): Marital Home — Keep It or Sell It?

Transcript

Host: Regina M. Campbell, Esq., The Campbell Law Group (TCLG)

Guest: Jeffrey A. Landers, founder of Bedrock Divorce Advisors, LLC (CDFA, CDLP), author of Divorce House Sense

Introduction

Regina Campbell: Hi, I'm Regina Campbell, your host here at The Legal Zone, brought to you by The Campbell Law Group. We're here today with a really exciting topic, "Marital Home: Keep It or Sell It?", and we have a wonderful guest today. I'm going to take a moment to step back and talk about our prior podcast and our guests. Our prior podcast was in Spanish, and it was done with our international associate, Virginia Mansilla, and our board-certified real estate attorney, Lucilo Ramos, who are part of The Campbell Law Group.

We discussed the reasons for bringing investments, particularly from Latin America, since there's great interest in doing so, to Florida and the United States, and the benefits and pitfalls, the pros and cons we need to be careful of when we do so. If you missed that episode, by all means come back and check it out on our YouTube channel or Apple Podcasts channel, or anywhere else we are online. It was a great episode.

But today I have the pleasure of introducing our speaker, Jeffrey A. Landers. He is an expert in various areas that I think will be very important when it comes to the marital home and what to do with it in a divorce, whether you should keep it or sell it. This is a topic that I've had a lot of difficulty with, with a lot of my own clients, even just trying to figure out deals, negotiating, trying to settle things, because it's always one of the biggest assets involved in a divorce.

And of course it's even more complicated by the fact that the wife or the husband may not have the ability to refinance or go to a new home. There are always those issues if they've been in the home for a certain amount of time, or children live there. So we brought in Mr. Landers today to talk to us. I'm going to give a brief introduction about his wonderful resume and his book, which is out: Divorce House Sense.

It's fantastic. I think it does a very good job of breaking apart the different chapters and issues that are going to be important in making this decision, and how to do so. It also discusses some of the more complicated topics. Right now people are very concerned about high interest rates and whether they should refinance. It scares people and creates another roadblock to potentially resolving a marital dispute or a divorce itself. He goes into great detail about it, and we're going to talk a little bit about this book today.

But first I want to give a little introduction about Mr. Landers' background. We talked a little bit about his book. It's available on Amazon and on his website, www.nextactproperties.com/books.

Jeff Landers: That's good. Thank you.

Regina Campbell: Mr. Landers is also a seasoned real estate, mortgage and divorce expert with over 40 years of combined experience. Jeff, I think I'll call you Jeff.

Jeff Landers: Yes.

Regina Campbell: I know, he's not "Mr. Landers." He's probably looking around, like, "Who's that?"

Jeff Landers: Exactly.

Regina Campbell: He earned his BA in psychology from Columbia University. He studied at Pace University School of Law before becoming a divorce financial advisor. He's also a certified divorce financial analyst, a certified divorce lending professional, and a licensed real estate and mortgage broker. So he brings quite a bit of experience, licenses and certifications to this process and to this topic today.

In 2010, Jeff founded Bedrock Divorce Advisors, LLC, working exclusively with women going through major, financially complicated divorces. Dealing with the marital home is almost always a major issue in a divorce. Jeff has a strong background and know-how, and has guided many women all over the United States through this process. It's a very complex process: how to sell their marital home, or potentially buy out their spouse by refinancing the mortgage, so they might be able to remain in the home.

He can also talk a little bit about creating an income stream, and how we can get creative with these ideas post-divorce. One of the factors is income production: concerns about paying the bills and qualifying for mortgages. So Mr. Landers... Jeff is going to talk about all this. Oh my goodness. Sorry. So with that intro, if I've missed anything, we'll go through it. But I'm going to introduce Jeff, not Mr. Landers. Thank you, Jeffrey. Thank you for coming.

Jeff Landers: Yes, thank you for having me.

Regina Campbell: That's great. So in the intro you can see the concerns. I deal with a lot of this in the divorces that I handle, and it's a problem, because it's the biggest asset of the parties.

Jeff Landers: Exactly.

Regina Campbell: And it depends on whether they're at the beginning of their marriage, or they have young children, in the middle, or toward the end, if they've been married for years, which also becomes very important. Especially if they've been in the home for 40 years, or there's limited income. So what are your top tips for us today?

Three options, and the tax and liquidity trade-offs

Jeff Landers: Well, first of all, I think people need to decide what they want to do. Usually you have three options. You continue to co-own the home together post-divorce, which in my opinion is a horrible, horrible idea for lots of reasons, and we can talk about that. Or you sell the home and, after the costs of the sale, you divide the proceeds and each go your own way.

Or, very often, as you know, one spouse, for a variety of reasons, would like to remain in the home. That usually necessitates that they buy out their spouse's share of the equity. And then, if the mortgage is not already in their own name, they're going to have to refinance, because the other spouse no longer wants to be obligated on a mortgage for a home they don't own. So those are really the three things.

Now, there are some people where the house has horrible memories: "I don't want anything to do with it," or it's too big, or "I never liked the location," or whatever. That becomes a lot easier: you just sell. But now you're going to have two divorced people. So even if you sell the home, if they want to go out and buy another home or a condo, or downsize, they still have to qualify.

And there are certain things that need to be included in the divorce settlement agreement to make sure that they can qualify, like, if one spouse is receiving alimony and child support, what's required for that. And the spouse that's paying it may take a hit as well, and there are some ways to get around that. But those are usually the three choices. And then, if they want to keep it, it depends on whether they can qualify and whether they have enough assets to buy out the other spouse. And if they don't, there are some ways we can get around that.

Regina Campbell: Okay. So one of the issues is that it's usually the biggest asset. If someone wants to buy somebody out, do they have enough other assets, alternative assets that are simpler, more liquid? Because part of the problem could be liquidity. You might have another investment, or a small business, or something that lacks liquidity.

Jeff Landers: Right.

Regina Campbell: So the other person has to take that into consideration and figure out, "I'll give you the house, so I'll take these assets." And there are tax implications as well.

Jeff Landers: Absolutely.

Regina Campbell: So they have to look at whether it makes sense for them to take this. Sometimes one party ends up taking more of the liquid assets, and it might not come out exactly 50-50.

Jeff Landers: Right. And for the person that's keeping the home, you don't want to be house rich and cash poor.

Regina Campbell: Exactly.

Jeff Landers: Okay, you've got this beautiful house, but now, even if you qualify, you've got the mortgage, you've got the real estate taxes and you have the upkeep. What happens if the roof has to be replaced in three years? Do you have 40 grand, or whatever it is, to do that? So there are a lot of things to take into consideration besides "Can I buy the other spouse out, and can I qualify for and afford the mortgage?"

Regina Campbell: Correct. And you made a good point that we were just talking about. A lot of my accountants say, "Regina, I want to tax-effect it." We'll be looking at a marital settlement agreement, at the distribution chart we're thinking about settling on, and they want to tax-effect it. Or at least I make sure my client understands: if they take a certain property or asset, what does it mean when they go to sell it? Because there could be a huge cost that they're incurring. You have to take into consideration which asset you take, because it could be a huge amount of money.

Jeff Landers: Oh, without question. If you have a stock portfolio and you want to liquidate part of it to buy out the other spouse, what kind of capital gains might you have on that stock, and are you taking that into consideration? And the same thing with retirement funds. So you have to think about that as well when you take distributions. We'll talk about how to create income: there's something called the 72(t), where you can take distributions from your IRA or 401(k). But yes, you have to take all of that into consideration, for sure.

Regina Campbell: We'll definitely get into that, and I'm sure it's very important. I also have some clients where the husband or wife might be a hedge fund holder, or hold certain instruments that require capital calls. So if you're not the more savvy business partner or spouse, and you don't understand the nature of that, you have to be careful about insisting on wanting that asset.

Jeff Landers: I worked on a case where not only were there capital calls, but there were clawbacks.

Regina Campbell: Ah, yes.

Jeff Landers: If they didn't achieve a certain return, there might be clawbacks, and especially for private equity, that could be in the hundreds of thousands, or millions.

Regina Campbell: Exactly.

Jeff Landers: So be careful what you wish for.

Regina Campbell: Yes, exactly. And don't be so angry that you say, "He likes that, so I want that fund," because you may not actually want it. Some of that is anger: "Well, he wants that fund, he loves that investment, he always talked about that company, and I want it." Like you said, be careful what you wish for.

Jeff Landers: Right. And every case is different. Is it very contentious? Because it's going to be hard to keep the home, or even to sell it, if the parties are trying to sabotage each other, or they're not even speaking to each other, or they won't cooperate. Or exactly what you said: "You want it, you're not getting it. I'd rather cut off my arm than let you have it."

Regina Campbell: They don't even know what it is half the time. They don't really understand it.

Qualifying for the mortgage

Jeff Landers: Right. So the first thing is to really decide what you want to do. If one of the spouses would like to keep the home, and in my experience, more often than not it is the wife, especially if there are minor children, then I like to work backwards. One: are there assets to buy out the other spouse? If there are, then okay, what's the mortgage? Now you're refinancing. Maybe your mortgage was 3% or less a year ago, and as of this morning I think it was 6.4, plus or minus. So now your monthly payment might be going up $1,000. Can you afford it?

What's your other situation? What's your credit score? What's on your credit reports? Did you have any late payments? What's your debt-to-income ratio? Do you have student loans? Do you have car loans? Do you have other mortgages? So it's not just, "Okay, I have the money to buy them out, and I have this income coming in, and I can do it." That's just part of the puzzle. That doesn't mean you qualify.

Regina Campbell: No. And you brought up a good point, and we can go into that. One of the biggest problems I have is when the woman says, "Okay, I'm going to buy you out," or, "I need to move into a smaller home," but she needs to qualify. Obviously she's buying it on her own, not with a husband or a cosigner. And most of the time I understand why a husband or the other party may not want to cosign or remain on a mortgage. Maybe there's also another woman. But it limits their own ability to get another mortgage and move on.

Jeff Landers: Right. Well, they take a hit if the person who's supposed to pay is late or skips a payment. Now both credit reports get dinged.

Regina Campbell: Correct. So what does someone do in those circumstances, like if they haven't worked for 10 years? Like we talked about, structuring deals.

Jeff Landers: So first of all, is the spouse that wants to keep the home getting alimony? If so, how much? Are they getting child support? Now, there are a bunch of requirements. In most cases, for conventional loans, you have to have received it consistently, on time, for six months prior to even applying, and then it has to continue for at least another 36 months thereafter. So you think you can count on your child support? Okay, but the age of emancipation is 18, and one of your kids is 16. Child support's going to last for two years. That doesn't meet the 36-month requirement.

Regina Campbell: Right.

Jeff Landers: So there are some ways to get around that. Maybe you assign more child support to the younger child.

Regina Campbell: Yes.

Jeff Landers: You could do that. You could increase your alimony temporarily, or it becomes a trade-off type of thing: "I'll only take 40% of the 401(k), but for the next three years, or 42 months, or whatever, give me that much more in alimony."

Regina Campbell: Yes.

Jeff Landers: And the other thing is, if the spouse that wants to keep the home has a good job, they may not even need it. Legally, the lender can't even ask whether you're depending on alimony or child support. Now, somebody can say, "Yes, I'm using my alimony and child support." But if someone's making sufficient income, W-2 or whatever, they don't even have to, so it becomes a non-issue.

Why co-owning after divorce is a bad idea

Regina Campbell: Okay. And I know from experience, from having to mitigate these issues... why is it such a bad idea to co-own with your ex-husband or ex-wife?

Jeff Landers: There are so many reasons. We could spend two hours right now talking about that. You're getting divorced for a reason. You're not getting along. There's infidelity, whether it's marital or financial or whatever, or there's a drug addiction, or some other problems. You're getting divorced for a reason. And as we've been saying, the home is the largest asset.

So do you now want to continue, post-divorce, to own your largest asset with your ex? And maybe your ex has a new significant other who says, "Get the money, we want to buy a nice new condo," or whatever. When there's a third party involved...

Regina Campbell: Yes, it makes things very, very difficult.

Jeff Landers: Then what happens if the roof needs to be repaired? Now you co-own it together, but it's $40,000 to replace the roof. So you would think, if you're doing 50-50, you kick in 20 and you kick in 20. What if I don't have 20 right now? And the other one says, "No, I don't have it either."

Regina Campbell: Right. Or one party wants to sell, maybe because of a third party, and the other one doesn't: "I'm happy here. I don't want to sell."

Jeff Landers: Or what if the market is terrible? Like right now, it's not great. Is this a great time to sell? And if you do, where are you going to go, since interest rates are much higher? So there are so many factors. I've seen divorce settlement agreements where that section is another 10 pages plus of legalese. What if you can't agree on which real estate broker to use? What's your listing price? If it doesn't sell, when do you reduce the price? How much do you reduce it?

You could go on and on, and no matter how good an attorney you might be, you can't think of everything. You can't think of every what-if scenario. I mean, whoever thought about a pandemic?

Regina Campbell: That's the black swan situation that nobody thought about. Even the recession in 2008 and 2009, when it started hitting: there were so many people who structured settlement agreements a certain way, and then the house was upside down. So you're not getting what you thought you were going to get. "I'm keeping the house, and I think I have $100,000 in equity." But you don't have that now.

Jeff Landers: I was just reading that a lot of people who bought at the very, very top of the market, now that prices have come down, especially if they did 95% financing or whatever, some of those people are already underwater. When the bidding was crazy, $50,000 over asking, no contingencies, no nothing, they spent all this money. And a lot of them, I think, are having buyer's regret: "Oh my God, what did I do? I overpaid by 50 grand or 100 grand." And the market has come down in certain areas, not here in Miami...

Regina Campbell: Right. But in a lot of other places, people are actually underwater. There's a huge crisis going on in most parts of the country. And there's the inflation, which is not reflected yet, but there is a correction going on.

Jeff Landers: Yes. And if you're underwater and you want to keep the home and do a refi, the appraisal, the amount you're getting, is not going to match. You're going to have to come up with more cash to pay off the old mortgage.

Regina Campbell: Right, just to get rid of it. And then all the equity you might have put into it, you no longer have for your next home.

Jeff Landers: Right.

Anger, litigation and the risk of trial

Regina Campbell: So these are interesting facts. We can see, just talking here, that there are various reasons. I had a case where the parties were excellent. I mean, amazing, even though they were getting divorced. The wife wasn't too happy about the divorce, but she was handling it very reasonably, very, very maturely.

Jeff Landers: It sounds like my situation. I was married for 34 years, but it was a very amicable divorce also.

Regina Campbell: So it's unusual, but it really is so important to do it that way. They're so stuck in the anger at the time, and I get it. It's not that I don't get that anger, or the frustration: "You let me down," or, "This is breaking apart," and everything that means. But at the end of the day, they forget that you still have to live afterward. If you have so much scorched earth that you destroy 25% of the value of your marital assets, or potentially make it more difficult for someone to make money, or you just spend more money on attorneys than necessary, it's less you have for later.

Jeff Landers: Right. I've worked on divorces, and I'm sure you have, where one spouse doesn't care: "I'd rather be living in a cave than give him or her money."

Regina Campbell: "I'm going to try to lose it all before it happens."

Jeff Landers: Right. Or vice versa. You see people do that. You see them start to kill their businesses or whatever. The thinking might be, "After the divorce I'll build it up again, but right now I'm getting it down to as worthless as possible."

Regina Campbell: I've seen a couple of cases in particular, husbands, where they highly leveraged it, intentionally. They never did that the whole 10 years they had the business, and now they're leveraging everything. Everything is going into debt, and that becomes hard.

Jeff Landers: Oh, yes. I worked on a case where they changed the accounting method and redid the taxes a couple of years back, so it ended up showing a loss.

Regina Campbell: Yes.

Jeff Landers: So there are all sorts of shenanigans.

Regina Campbell: Yes. My corporate background and financial background help me understand, and I'm like, "No, no, no, wait a second here." You've got to look deeper into the different layers. But even then, it's expensive to litigate these issues and prove them. And I think part of the problem is that there are times when one party wants to be reasonable and the other's not, and you're going along for the ride, and there's really not much you can do.

Jeff Landers: Right. And you want to avoid trial, because besides the fact that it's extremely expensive, when you go to a judge and say, "Hey, we can't figure it out, you do it," you don't know what's going to happen. Both parties are taking a huge risk, because maybe that judge had a fight with their spouse that morning. And what's interesting is that they did a study showing that the rulings that come down right before lunch are usually very adverse. People are hungry, they want to go, they don't care: "Let's get it done, whatever," and have their lunch.

Regina Campbell: Yes, I've had a lot of judges sit there and tell our clients, when I'm representing one party and someone else is representing the other, "You really need to try to figure this out. I'm happy to do it, it's my job, and I'll do it. But you may not like my decision. Remember, I'm not going to understand you, or your way of being, or what works for you or your children, the same way you do. I'll do my best, but really, you are the best people to make this determination."

Jeff Landers: And many judges don't have a financial background, because they don't teach finance in law school. Most attorneys don't have a background in finance, and of course the judges don't either. So they're making decisions on things they may not fully understand, when you're talking about the tax implications of this or that, or giving this property to the wife and that to the husband.

Regina Campbell: Right. And now you've got exclusions on the primary residence. Not everybody fully understands. Like anything else, you have some who really know what's going on, and others... especially because of the shortages, they may pull a judge from a different division who's not as familiar. A lot of the judges here aren't really comfortable with family law. They might previously have been a prosecutor, or a defense attorney for criminal cases. You put them in family, and they have to learn. Like anything, we all learn. We're general practitioners as lawyers, but that doesn't mean you're going to understand those nuances. It's just a reality.

Bring in a team early

Jeff Landers: Well, exactly. That's why, as you said, it's better if they can solve it themselves. And that's why it's important, in my opinion, to have a team.

Regina Campbell: Yes.

Jeff Landers: Not only the attorney. As a CDFA, a certified divorce financial advisor, I've worked on all the financial aspects. The reason I got into focusing on the marital home was that after doing hundreds of cases, you realize that in almost every one, the home is the most contentious piece, and it's usually, if not the largest, one of the largest assets. So that's what I wanted to focus on.

And the truth is, the sooner you bring somebody like me in, in the beginning, the more time you have to correct things. Most divorces aren't over in a month. They take a year; I've had some that go on for years. So say you discover in the beginning that there are some problems on your credit report. If you can pay down this credit card, or do that, not only would you bring up your score, but you'd bring down your DTI. So you kill two birds with one stone by doing that.

Also, somebody who does what I do looks through everything and tries to figure out: can you qualify? What's the mortgage? Do you have assets? If you don't have sufficient assets, maybe you have to take out a larger mortgage, which means it's even harder to qualify. So if it's determined up front that there's no way this is going to happen, why spend all the money and time going back and forth negotiating the agreement and all of these things?

Otherwise, the agreement is signed, you go to a mortgage broker or the bank, and you find out you don't qualify. Now you've spent all that time and money, and it would have been better to find that out right up front, or to come up with alternative methods, or maybe it's, "Okay, I do need to clean up my credit."

Regina Campbell: It looks like even contentious divorces can still have a level of civility. Maybe that's not the right word, but kind of a pragmatic side. They can be pragmatic: "I don't like any of this, but am I really going to cause myself that problem?" There are times you might be angry with a spouse. Okay, they were cheating on you. It's not fun. But you also have to save yourself financially: where does this leave me?

My emotional side, that's another aspect I need to deal with, but that's different from: where do I live? What's my economic situation? How do I make it better? What is it going to look like when I get divorced? So it might be something you can plan for.

I'm a collaborative attorney as well, here in Florida and in Miami, and a lot of times in collaborative cases we'll bring in a team. It does not mean we're all singing "The Sound of Music" on the hill. A lot of them are highly contentious cases, but they have that pragmatic side: "Okay, I need to deal with this." We sometimes involve an accountant or a financial planner, and sometimes there's a mental health professional, because it is emotional.

I can only imagine... as a mom, when I got divorced, my first thought was, okay, where am I going to live? How am I going to pay for it? So not only was there the hurt and the other things that were occurring, we had businesses together and all this stuff, and the complexity of it, but there's the angst. That can cloud someone's judgment, because you're in the middle of it. You're not able to be fully objective.

But by having other professionals around you, they can help guide you: "Okay, we can do this. Let's structure the deal this way." And you've got the professional in the room saying, "I think we can work this out if we try this." So they help you with the process, and I think that helps quite a bit, whether you do it in a collaborative setting or separately, on your own, with two attorneys and an accountant or a financial planner.

Jeff Landers: Because everybody can't be an expert in everything. You have mortgage brokers and mortgage loan officers, but they don't know all the nuances of how divorce impacts that. In fact, a lot of attorneys don't. I've spoken to attorneys who didn't know that 6/36 rule. And sometimes it becomes difficult, because in many of the cases I've worked on, the husband was still paying the mortgage and paying the bills, so the attorney said, "Let's not ask for temporary support. He's already paying everything. Don't rock the boat."

Regina Campbell: Correct. Or you may end up getting less than what he's already paying.

Jeff Landers: So don't do that. That's fine and good, and I understand it, but the other side is that you've got to start the clock ticking. I've seen many divorce settlement agreements that say you have 60 or 90 days to do the refinancing, or you have to put the house up for sale. Well, you're not going to be able to do it if you have that six-month rule. With FHA you can do three months, but for a conventional mortgage you need six months. So if your settlement says you've got 60 or 90 days...

Regina Campbell: Exactly. And actually, it might resolve the tension, even with the other party, if they're realistically planning to make it possible to see whether she or he can qualify for the mortgage. It might calm the circumstances down a little bit, because everyone gets caught up in "What if it doesn't sell, and what about this, and what about that?"

So if you understand at least what the requirement is, and that it's more likely to happen, it might calm down the party that wants to keep the home, and it might calm the other party down too: at least if it doesn't work, then they're going to force the sale, and this is what's going to happen. But at least they're given a chance.

Jeff Landers: And you want the outcome to be good for both parties. Even if one spouse is keeping the home, the other one now wants to go out and perhaps buy something else. So how is this going to impact his or her ability to qualify for a mortgage? Or if the home is sold, now you have two people going out, maybe to buy something smaller, but again, they still have to qualify.

So if you bring in a divorce mortgage expert, they can help both parties: "Okay, we'll do this, because she wants to keep the home, but we understand that you've got your own situation, which is one of the reasons we're refinancing, to get you off the hook." Or maybe there's certain debt, and one party can agree to take it over, and for the other party it becomes a contingent liability, so it's not part of the DTI.

Regina Campbell: Right. So there you go. Absolutely correct. It helps, because as an attorney, a lot of this I've got to know, because I do talk to experts such as yourself to structure deals and make them work. But even then, a lot of times we're sitting at trial or something, making this deal, and it's all about time. So you talk to an expert and say, "Okay, what about this? What if we shift this? And what about the tax consequences here?" And then the clients ask, "Regina, what happens if this happens?" And it's like, I'm not an accountant. I can't tell you exactly what the capital gains are going to be. I cannot tell you certain things.

Jeff Landers: And with the mortgage, it's a moving target right now. It's changing literally by the hour, going up, going down. So 10 minutes ago you may have qualified, and then the rates go up a quarter of a point and you may not qualify, or you'd only qualify for a lesser amount.

Regina Campbell: And if you have children... this is another angle, because I've seen this also. Let's say they may not qualify for something in the same neighborhood, but there's another neighborhood. It might be more taxing on the children; they have to drive a little further. We have to think about co-parenting. You ask the other party, "Can I go ahead? I want to move 10 miles this way." In the state of Florida, if you stay within 50 miles, you don't have to notify the other party.

But the reality is it will affect everyone's daily life. Everyone's driving further to school. Then it opens up the discussion: "I can't afford a house here, so shall we change schools? Should we keep driving there? Should we consider a private school?" So it affects everyone's life. There's a co-parenting aspect to it.

Jeff Landers: Without question. And I think that's why a lot of women want to keep the marital home. The entire divorce is stressful enough on the parents. It's also stressful on the kids.

Regina Campbell: Yes.

Jeff Landers: And then for them to think, "Oh my God, I can't stay in the same school, and I'm moving away from my friends..." That creates all these other issues. And then, on top of the divorce and everything else, now you have to pack up the entire house and get movers. It's just so much.

Regina Campbell: Away from Susie and Tommy and everyone you grew up with for 10 years, right across the street. Those are very impactful things for children, not just adults. So there are these little things that I think are so important to talk about, because you can't do this once you've already put pen to paper. Once it's done, it's done.

Jeff Landers: That's why. And by then you've spent tens of thousands of dollars in attorney's fees, so you're like, "I don't even care if I sit on the street. I just want to be done."

Regina Campbell: Yes, exactly.

Equity sharing and the sale-leaseback

Jeff Landers: Now, that's important. And even if they can't qualify or don't have the assets, there are a couple of alternatives as well. One is called equity sharing. There are companies that will come in and basically become your silent partner. It depends on the value of the home and all of that, and each company does its own thing, but based on the home and your loan-to-value, they'll give you, say, $100,000. You can do whatever you want with it. There's no payment. It's not a loan. They're your partner.

The usual stipulation, and again, different companies differ, is that you have to either sell it or buy them out after 10 years. Some go as high as 30 years. And then they may end up getting 40 or 50% of the future value. But at least you stay in the home.

Regina Campbell: They're betting on you that the house will appreciate. They want to ride it with you.

Jeff Landers: Right. But they'll also go with you on the downside. If the neighborhood changes or whatever and it goes down, they'll ride with you there. There are, I want to say, five to 10 companies that do this. I've done it with a couple of clients. It's basically for when nothing else works and you still want to stay in the home.

And the other thing, and you probably know about this, is a sale-leaseback.

Regina Campbell: Yes.

Jeff Landers: Basically, let's say I buy the house from the spouses, and then the spouse who wants to stay there pays me rent. There are several companies that do that as well, and many times they'll give you the option to buy back the home at a higher price, based on either an appraisal or, say, a 3% annual increase, or whatever it is. So you've sold the house: everybody gets their share, the mortgage is paid off, yet you still get to stay in the home. It bought you that time.

Regina Campbell: It's a solution.

Jeff Landers: And now you no longer have to worry if the roof needs replacing. That's the landlord's problem.

Regina Campbell: Yes, that's right.

Jeff Landers: But you don't have to move. You don't have to pack up. You get to stay in the house, and maybe circumstances change a few years down the road, and you have the option to buy it back.

Regina Campbell: It's almost like having an option. These are creative ideas, and a lot of times not just the divorce attorneys but the parties themselves are unsure. They don't know if it's real. They need someone to be able to guide them.

Jeff Landers: Right. Or they've never heard of it.

Regina Campbell: Correct.

Jeff Landers: I mean, the sale-leaseback is very common in commercial real estate. You have a CVS... I have a friend who owns a bunch of CVSs. A 20-year lease, she doesn't have to work, and the money's deposited in an account.

Regina Campbell: Right. It's awesome.

Jeff Landers: But it's not as common, you're right, on the individual side. It's probably only within the last five to six years that it's been done on the residential side, but it's the exact same principle. Again, it's probably the last resort: "I want to stay in the house, but there's no other way I can do this."

Regina Campbell: Yes. Or you do it short term: "Johnny graduates from high school in two years; let me do it for two years and then I'll move on." Or, "Let me finish my master's degree, I'll make more money." It gives you a little bit of time to maybe buy it back.

Jeff Landers: Correct. Exactly.

Creating income streams to qualify

Regina Campbell: So these are all great ideas. One of the ones I also like is, I know you talk about qualifying by creating income streams. So talk to me about that, because sometimes people see things very one-dimensionally: "I have this in the bank account, I have a brokerage account, and I can't do it. I have a house, and I can't do anything else with it."

Jeff Landers: Right. And this probably applies very well to some of your clients who are high net worth or ultra-high net worth, who may have a lot of assets but no income. Many times the mortgage lender doesn't care about the assets. There's a type of mortgage called asset depletion, and all of that, but the interest rates are higher and it's more difficult to qualify. If you're over 62, there's the reverse mortgage, and that's another possibility. That actually could be very applicable in divorce cases.

But if you have assets and little or no income, one of my favorites is buying a fixed immediate annuity. Most insurance companies have a minimum term of five years, which is not too bad, because you need 36 months of income anyway. With a fixed immediate annuity, you hand over, let's say, $100,000, and you're getting $1,500, $1,600 a month for the next 60 months. So now you've qualified for the 36 months of continuous income. With an annuity like that, you don't need the six months prior. You just need to show that you received one deposit into your bank account. And there you have your income.

Basically, over the 60-month period, you recoup your initial $100,000 plus whatever interest, so maybe you end up with $106,000 at the end. But the beauty of it is that the first $100,000 is not taxable, because it's considered a return of your principal. So the only portion that's taxable is the $6,000, divided over five years.

Regina Campbell: So that's really good.

Jeff Landers: Yes, and that gives you a real income stream. That's one way to do it. Another one: during the divorce process, you set up a revocable trust. Basically, money is transferred, wherever it comes from, a bank account, whatever, into the trust. The beneficiary is the spouse that wants to keep the home. You need to address it in the divorce settlement agreement, saying X is being transferred into this revocable trust, and the beneficiary, the other spouse, will get X dollars per month for X period of time. And the trust has to have sufficient assets to pay X for that period of time. So it's not a problem that it's revocable in nature.

Regina Campbell: Because technically the grantor could just terminate it two months in?

Jeff Landers: Well, yes, I guess the agreement has to state that you're going to keep it in place. It has to have the money for the period of time, whatever it is, the three years. All they care about is that you can pay for at least 36 months.

Regina Campbell: Well, that's the beauty, because after you're done, you revoke it.

Jeff Landers: Right, you revoke it, whatever. But it really should be done before the divorce is finalized, and there should be money in the trust. Because if it's done post-divorce, and the spouse that wants to keep the house sets it up, most mortgage lenders will say it's self-funded.

Regina Campbell: It's self-funded. Yes, that makes sense. So the steps are very important: which came first, which came second, which came third. Because if not, it won't work.

Jeff Landers: Right. And it really should be in the divorce settlement agreement, so when the underwriters look at it, everything's copacetic: it was set up properly, it has the amount of funds that are necessary, and it stipulates how much is being paid per month, for how long, all the good stuff.

Regina Campbell: It becomes a court order, right? So it's, "This is what you're going to do." It's not like I can just change my mind tomorrow, do something different and play around. It becomes part of the agreement.

Jeff Landers: Exactly.

Regina Campbell: Okay. So it's enforceable.

Jeff Landers: Yes, for sure. And as far as lenders are concerned, that works. The annuity is great. Then we talked briefly about the IRA and retirement, the 72(t), where basically you can get what's called an SEPP. I forget what it stands for at the moment, but basically it's substantially equal payments over a period of time. It has to be for a minimum of five years, or until you turn 59 and a half, whichever is later.

Regina Campbell: Are we talking about the same SEP that you can create as business owners?

Jeff Landers: No, no, not a SEP account. It's something in the IRS code, 72(t), and it's SEPP, which stands for substantially equal something payments. And you really need an expert to set it up properly, because if you set it up properly, you avoid the 10% penalty. You don't avoid paying the taxes on the money you take out.

Regina Campbell: So unless it's a Roth, it's still ordinary income when it comes out, I guess?

Jeff Landers: Yes, I think it would be ordinary income. And there are other requirements. I think you can't add any money to the IRA while you have this 72(t), and you can't do it with a 401(k) at an existing employer.

Regina Campbell: Gotcha. So if you have an old one...

Jeff Landers: You can set it up with that. A lot of people, when they leave an old employer, will not roll their 401(k) into the new employer's 401(k). They'll roll it over into an IRA, and then with the IRA you could set it up. But anytime you're dealing with anything with the IRS... I tried to read this, and now I understand why I dropped out of law school.

Regina Campbell: Yes. And I'm used to dense language in different areas, with lease agreements, whatever it is, but the IRS is so convoluted. You read one section here, and then you read five paragraphs down, and it just contradicted what it said up there. Or there are exceptions to the exceptions to the exceptions, under the CFR and under these regulations, under this tax code, and you're just like, "I'm dizzy."

Jeff Landers: Yes, well, that's why there are CPAs.

Regina Campbell: I don't think AI is solving this problem anytime soon. AI is going to go crazy trying to read this code. Any software would look at it and be like, "Maybe we need to rewrite the code for you. Just rip it up and start all over." It's so convoluted.

Jeff Landers: But yes, those are some of the ways you could create income if you have assets. And again, there's also asset depletion, where basically you could get a mortgage, called an asset depletion mortgage, and they'll look at what your assets are. Cash counts as 100%. A stock portfolio, they'll usually give you 60 to 70%, because stocks can go down, especially in this volatile market. And retirement accounts are usually 50%.

So they'll take 100% of cash, 70% of the stock portfolio and 50% of retirement, add it up and divide it, usually by 360, for a 30-year mortgage, and they come up with, say, $3,000 a month, and that's what you can afford. Now, that could be in addition to alimony, child support and other income you might have. You just can't double dip.

Regina Campbell: Because my thought is, do they put any restrictions on the use of the cash? I once represented a baseball player, and it was an interesting case. This was a while ago, probably about eight years ago. He had a lot of money in the bank, but he was retired and didn't have income, and the investment income wasn't enough. He could not qualify for what he wanted to do, because he didn't want to just use the assets and buy the property outright.

And I was thinking to myself, this is a crazy situation, because it's real money. But then you think about it: you have money in an account, but what happens if tomorrow you go to Vegas and gamble it away?

Jeff Landers: Well, it's based on an assumption. So to answer your question, are there any restrictions? The answer is no. They'll add it up with those percentages, divide by 360 and say, "Okay, it's $4,000 a month," or whatever. But you could go get the mortgage and spend the money tomorrow. The assumption the mortgage lender makes is that if you were financially prudent enough to have this much in assets, you're not going to Vegas tomorrow and blowing it all on red, or at the blackjack table.

Regina Campbell: That's it.

Jeff Landers: Are there people... oh, absolutely. People have gambling problems. Could that happen? Absolutely.

Regina Campbell: It's like assessing a credit score, to some extent, right? It's just another way of saying that if you've been able to amass a certain amount of assets over time, then presumably you're not going to be reckless.

Jeff Landers: Right. And you can't double dip. So you can't use those assets for the asset depletion and then say, "Okay, now I'm taking that same money and buying an annuity, so I have more, and then I'm going to put some in a revocable trust." You can't do that. That's double dipping. You could do separate things. You could take money and buy the annuity, but then you can't include that money in the asset depletion.

Regina Campbell: Right. Makes sense.

Regina Campbell: Wow, this is really enlightening. I'm wondering if we missed anything, because this has been great. Some great points, and definitely topics that people just don't hear about or understand. I usually have these types of conversations with other financial professionals, or accountants who are more creative and understand certain things: "Let's try it this way." Some of the mortgage people can think creatively too, like an accountant: "We can try this, use this asset for this, get it invested and come up with this." But they're not the financial professionals either, the planners or brokers who actually handle the money. The average person or attorney just isn't going to think of these things.

Jeff Landers: No. Some of them don't know it exists, number one, or some are not that creative. You're in a box: "This is my retirement, I have my this..." And many times it's, "Oh, just sell the house, because it's the easiest." I've worked with attorneys who are like, "I don't want to know from this. Just sell it, be done, and both go."

But what they often don't realize is that even if they do that, they still have to qualify if they want to buy. There's still a divorce settlement agreement, and they still have to live within the confines of it. So if it wasn't set up and worded properly, they're going to have problems.

Regina Campbell: And I try to plan this out. Some of my clients just want it over and done: "All right, great, I got this much money. Let me go." Are you sure? In seven years your child support's going to end. You have these expenses. Go talk to your broker. Make sure they work out an income stream for you, so you know what you need before we settle. I try to understand where they're going to land.

It's not just, "Okay, you want to sell the house." Do you want to move? Because it's also part of the discussions about the children, if the mother is saying, "Regina, I can't afford to live here. I'm going to have to go back to Georgia," or wherever.

Jeff Landers: Right. It has to be part of that conversation, because the other spouse may say, "No, you're not moving out of town."

Regina Campbell: Yes. And now it's, "Regina, I have nobody here. I can't afford to live here." So how am I just going to tell them to sell the house without them understanding? They're stepping into an abyss. They have to understand the whole picture.

Jeff Landers: Well, when I do the finances, not just the house but everything concerning the finances, one: I assume people now live to the age of 100. So all of my analyses are based on somebody living that long. I've had many high net worth clients. I had one client who was spending $20,000 a month on clothing, but didn't realize it, because she used this credit card and that credit card. And finally I had to give it to her straight. I said, "You'll look great for the next 20 years, and then what do you do? Then you're eating cat food." And this was a woman who was walking away with $25 million, but she was spending $2 million a year.

Regina Campbell: Yes, exactly. She's used to her lifestyle, and it doesn't really account for the money coming in. Now she has a finite amount.

Jeff Landers: And if you're spending $2 million, even if you have investments, what are they making, 3%, even conservatively? You're still going to run out in 15 years or whatever. And she was, I think, in her late 40s or early 50s. So it's like, "Yes, you're going to look great. Keep spending your 20 grand." How much clothing does... no, seriously. But when she's at retirement age, she's got nothing left, so she's going to start working then?

Knowing where you will land: prenups and postnups

Regina Campbell: Right. And I do try. With some people, you can lead them to water, but you can't make them drink. But I do try to at least say, "Listen, do you see this?" I do some prenups, and lately I've been doing a lot for young individuals. I say young because they're younger than me, maybe early 30s. They've spent a couple of years out of law school making good money, they've decided to get married, they're marrying a very wealthy person, and they're thinking of having a kid, and she's going to be home.

But you're signing a prenup, and I'm like, "I want you to think about this. You'll probably get child support, I get it. But they also might structure it so that you get X percentage and the other percentage goes to a trust for the child. If child support works out to be $30,000 a month, you're not likely to get $30,000 yourself. It's likely the child only needs X amount, even with the high lifestyle. And if you get divorced in 15 years, all that time you're not building your career, and you have to restart all over again. Where are you going to be? It says you don't get the house, you don't get this. I want you to think about this."

Jeff Landers: And sometimes you can't restart. I had a client like that. She was a surgeon, except she had five children and was home for 20 years. I'm not letting her operate on me. And she never got recertified. So there was no way. The husband was saying, "Well, you can make 300 grand doing medical supply sales," or whatever. It wasn't realistic. What we had to do was bring in a vocational expert, and it was assessed that maybe she could make 75 grand. So instead of 300, we imputed 75 grand.

Regina Campbell: Yes, it's absolutely true. You're exactly right.

Jeff Landers: And that's a good reason to do a postnup. Say somebody's an attorney or whatever, and they decide to have a family. They quit, stay home and have the kids. Do a postnup that deals with what happens with the house and all of those things down the road, so you know where you stand afterward. Because if not, you're in a very difficult position.

Regina Campbell: You don't picture that, especially when you're younger: where you're going to be at 45 or 50. You just had everything going this way. What you remember is making hundreds of thousands of dollars as a lawyer, as a fourth-year associate. You think life is great: "If anything, I'll just go back." But it's not as easy to jump back in, especially when you lack the experience after so many years. And everyone's different, whether it's a business, a career, whatever it might be. So I try to get them to understand what that means.

Jeff Landers: No, I think that's very important, because most people don't. The tagline for my other company, Bedrock Divorce Advisors, is "Think financially, not emotionally."

Regina Campbell: Yes. My mother was always a very genuine, emotional, compassionate person, but the one thing she always taught me was, "Regina, you don't give up your career, or your ability to make money to feed your children, for nothing." And by the way, people say, "Well, you're already thinking he's going to cheat on me?" No. What if he dies? Or what if he has catastrophic financial circumstances? Or he has an injury? I'm not presuming he's going to cheat on you. That's not what I'm saying.

But my mother would say, finances are one thing, and you cannot put yourself in a situation where you're going to be out starving on the street for anyone. You have to be able to stand on your own, because you're with a partner because you want to be, not because you're financially required to be.

Jeff Landers: I forget who said it, but someone once said, "A man is not a financial plan."

Regina Campbell: And now, I think with at least 25% of my clients, the woman is the majority breadwinner. I'm seeing that a lot. And a lot of times I'm finding that they are the major breadwinner, but they're also giving birth, obviously, and doing a lot of the child rearing and all this stuff at home. And I tell them, you need to remember that prenups and postnups exist the other way too. When you're deciding on the roles, you need to consider that. Because if he's at home playing PlayStation every day, you know what I mean, he's going to get alimony, and he's entitled to it. I'm not taking that away from anybody, man or woman, if the law requires it. But is that what you intend?

Jeff Landers: Right. And women hate paying alimony as much as men do.

Regina Campbell: Oh, I'm like, nobody likes paying alimony. If the woman is the one with more money, or is more sophisticated, or has a lot of the control or power, I can tell you women can be just as vicious and pull out all the stops and all the legal tricks as men, to try to avoid paying for certain things. And I get it. It's not fun. But that's what's required when you get married without a prenup.

And I think the more recent generation, the younger generation, is learning. They're having a little more of those frank conversations: "What happens if I build my business, and you're doing your career? This is mine. If we get married, I do want to keep it." And I tell people, if someone helps you build something... I also don't believe in "You get nothing," because if you're a homemaker, it's a hard job. Whatever you are, it's a hard job. I'm not saying that someone didn't help you build something.

But it has to be commensurate, and the conversation about the expectations between the parties has to occur beforehand. Because sometimes we just go in: "Whatever, I'll be fine, because he's in this role," or, "The prenup doesn't matter, because later he'll just..." No. Do not go in that way. Have a healthier conversation: "Hey, listen, if you want me to give up my career to travel with you everywhere, and then we break up in three years, what do I do? I gave up my apartment, I gave up my career..." It happens. That's life, for whatever reason. But people don't have those frank conversations.

Jeff Landers: They'd sooner talk about their sexual preferences than their financial situation.

Regina Campbell: Yes.

Jeff Landers: But I think it's also that in their late 20s and early 30s, this generation is not so quick to get married. Which means more assets when they finally do get married. They have their 401(k)s, maybe they already own an apartment or a house or an investment property or a professional practice.

Regina Campbell: I find I'm having a little bit more of those conversations, as long as it's not infatuation on steroids, as I like to say. Because sometimes the eyes are just like...

Jeff Landers: Right. You're just not going to be objective.

Regina Campbell: It happens to the best of us. I'm sure it happens to us, because we're human.

Jeff Landers: Yes. And I've had a lot of people send me their prenup and say, "I'm getting married. From a financial point of view, do you think this is fair?"

Regina Campbell: Yes. So I think it's very important. It's such a big part of our lives: family law, or family in general, getting married, your house, your finances, your children, yourself, your potential business, your career, whatever assets you've accumulated, and your financial health. Because it's not just, "Okay, that cost me $20,000, but I'm done." No, it could be a continuous stream out, or an obligation for 20 years, or in some cases a lifetime.

Jeff Landers: Yes, exactly.

Regina Campbell: So I think it's important to be educated and understand it, because these issues can devastate you. It's not like, "Okay, I bought the wrong outfit and I'm okay." This is monumental. Issues of finance and family law can change your life, whether you're married, or even for people who cohabitate. It becomes a little complicated when they start intertwining their...

Jeff Landers: Well, that's why they should have a cohabitation agreement. And if it's done well, if they get married, it could convert right into a prenup.

Regina Campbell: Yes. Because otherwise you have people going, "Well, wait a second, the couch goes with me," "No, I want the couch," or fighting over pets.

Jeff Landers: Yes, that's a rough one.

Regina Campbell: A lot of states previously considered pets personal property. Now they're giving pets something like custody and child support, because they've become part of the family. They really are.

Jeff Landers: Yes.

Regina Campbell: I'll tell you right now, I adore my children with my life, but my pets are nicer to me. And my children keep saying "my daughter," "my son," like I'm taking them away. They're the ones who brought them into the house and swore they'd take care of them. And now they're all in my bed, all night. So my children are going to have to fight me for them now. But they are like children.

Jeff Landers: Yes, absolutely.

Closing

Regina Campbell: So this has been very fascinating and wonderful. It's a lot of information that I think people don't have, and hopefully they're receiving it. Of course they can always watch this video again if they didn't see the whole thing. I think it's wonderful. Jeff, thank you for coming.

Jeff Landers: You're too polite.

Regina Campbell: Thank you. This has been so informative and, I think, helpful for our audience and for many, many parties out there, particularly women. I know this applies to both men and women, but like we say, a lot of times right now it's affecting women more, especially when they keep the children or are homemakers. And I think each party needs to be very cognizant of where they're going to land.

Jeff Landers: Right. And things are more difficult now because of the interest rate environment, and that's making these decisions more difficult. What I've been telling people is that if you're either thinking about divorce or have already filed, start thinking about bringing in a divorce mortgage and real estate expert. We can help you get your credit report in shape and figure out what to do with your debt. And this takes time. You can't increase your credit score in a week. So by the time we get you in shape, interest rates might be down.

Regina Campbell: Yes. Or you have a choice: maybe you hold on a little longer. I have people who are staying together. They did divorce counseling a year and a half ago, and they're just waiting for the right time, or for his retirement. But a lot of times, they also can't afford it.

Jeff Landers: Well, yes. You're hearing more of "I can't afford it."

Regina Campbell: Right.

Jeff Landers: And now people are nervous about the recession, that they're going to lose their job: "I can't get divorced now. If I lose my job, how am I going to pay any of this?"

Regina Campbell: Right. So hopefully these different topics and this information will help our viewers make decisions. And Jeff, by all means... oh, my manager is telling us we went past an hour.

Jeff Landers: We did say we'd talk for hours.

Regina Campbell: And we did indeed. So I am wrapping it up, I promise. That's me, I like to talk. But it's a great topic. Hopefully this is helpful for our viewers. And by all means, pick up Jeff's book, Divorce House Sense. It's fantastic. And call Jeff... wait, call Mr. Landers.

Jeff Landers: You can call me and say, "Hi, Jeff."

Regina Campbell: Exactly. But I want to thank you very much for coming.

Jeff Landers: My pleasure. Thank you for having me. This was fun.

Regina Campbell: This was good. Thank you so much. And thank you, everyone, for tuning in to another episode of The Legal Zone. I think I forgot to mention that this is Season 3, Episode 4, just in case you want to be able to find it in the future on one of our platforms. And again, please tune in for future podcasts, follow us on our social media accounts and subscribe on our platforms. Thank you so much.