Short answer
Self-employed borrowers in divorce need extra lead time because qualifying income is generally derived from tax returns and business documentation, and because business valuation, distributions and buyout terms in the settlement can affect both the income calculation and the loan structure.
Where the complexity lives
Four areas come up in nearly every self-employed divorce file:
- How qualifying income is calculated from returns and business documentation
- Whether the business itself is part of the property distribution
- Whether business assets can be used for down payment or reserves
- Timing — a filing year or a restructuring can change the calculation
Lead time is the advantage
Decisions made for tax reasons and decisions made for qualification reasons sometimes point in different directions. Knowing that in advance lets you and your advisors choose deliberately.
Frequently asked
Are there loan options that don't rely on tax returns?
Alternative documentation programs exist, with their own requirements and pricing. Whether one fits depends on the full scenario.
About the author
Abdel Khawatmi, CDLP®
Certified Divorce Lending Professional and founder of Got Mortgages, a division of Paramount Residential Mortgage Group, Inc. Abdel works with divorcing homeowners, attorneys, mediators, financial professionals and real estate professionals across New Jersey. NMLS #1712023. He is not an attorney, tax advisor or financial advisor, and this article is educational only.