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Mortgage refinance to pay off separate debt

A situation has arisen where parties are using proceeds of a refinancing to pay off a separate debt.

The question is how to handle this in Family Law Software.

There is no way to directly specify that a refinancing will pay off a party’s separate debt.

You would be using marital debt to pay off separate debt, which is hard to represent.

But there is a way to represent this in the software.

You can enter the separate debt as if it were marital, enter a Debt for the party being relieved, and an Investment asset of the other party.

The following example will illustrate:

Example: Suppose Party A’s separate debt of $1,000 is being paid off by a mortgage refinancing. Here’s what you can do:

1. Enter the separate debt as if it were part of the existing mortgage.

2. The refinancing, which creates a marital debt to the bank, will create $500 of debt owed by Party A to Party B. (This offsets Party B’s $500 share of the new marital debt.) 

3. Enter a separate Debt for $500 owed by Party A.

4. Enter a separate Investment asset of $500 for Party B, which represents the debt owed by Party A. (This would be entered as if it were a bond.)

5. Now you have the new mortgage, and the separate debt situation fully represented.

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