Real Estate Issues in Divorce

Divorce is more than just an emotional and financial battle.  Real estate issues divorce brings up can be quite tricky.  The general rule in most states is that property acquired by the couple after they are married is the property of both.  In some states, it is called “equitable distribution”, while in other states it is called “community property.” There is a subtle legal difference between the two for purposes of legal ownership and tax issues, but the net result is generally the same for long-term marriages when a property is distributed upon divorce.  This rule also applies to property that belongs to one spouse but increases in value during the marriage.  “Property” can also include the value of a professional practice or business to which the spouse directly or indirectly contributed.

Nuptial Agreements

Notwithstanding the above-stated rules, spouses can make any agreement they wish in writing to the contrary.  These agreements, of course, are subject to public policy restrictions that vary from state to state (for example, in most states a spouse cannot be disregarded in a will; the law automatically gives the surviving spouse a share, even if she was excluded).

Generally speaking, there are two types of such agreements: pre-marital agreements and post-marital agreements.  Many people are reluctant to enter into pre-marital (a.k.a. “prenuptial” or “antenuptial”) agreements for fear that their soon-to-be spouse may be insulted.  However, in a second marriage situation an individual may want to make certain that children from a previous marriage are provided for, and therefore such an agreement may be necessary.  In order for such an agreement to be enforceable, a full disclosure of both spouses’ assets must be made to each in writing.  In addition, both spouses should be represented by their own attorney and sign an acknowledgment that each understands the legal and financial ramifications of such an agreement.

A post-marital (a.k.a. “postnuptial”) agreement is made after the couple is married.  It is an agreement which may define which property is the separate property of each spouse.  It may also be an agreement to convert “marital property” into the separate property of either spouse.  These agreements are generally enforceable and may be effective against the creditors of one spouse.

Liability for Mortgage Loan

Another part of real estate issues in divorce is real estate and liability for mortgages. As part of a divorce settlement, it is common for one spouse to receive title to the marital residence.  In most cases, both parties signed the original mortgage note.  What few people realize is that transferring title does not remove your obligation on the note.  Furthermore, if the other spouse defaults on the payments, you have absolutely no way to get the property back!

Consider selling the property upon divorce or inserting a provision in the settlement agreement that requires your ex-spouse refinance the mortgage loan within a six-month time period.  If your ex-spouse is unwilling or unable to qualify for a new loan, keep your name on the deed or have your ex-spouse sign a security instrument (2nd mortgage or deed of trust) that allows you to foreclose the property if he or she defaults on the first mortgage loan.  In this case, you will have recourse against the property if your ex-spouse defaults on the payment obligation.

Real estate issues in a divorce can be tricky, so make sure you have competent legal advice before proceeding.  And, don’t assume because your lawyer knows divorce that he or she is an expert in real estate law as well.  Make sure your lawyer can deal with the real estate issues in divorce.