Parting of the Ways
Co-ownership of a house can unwind in several ways. One way is through divorce proceedings. You might be wondering how this works, and what kind of decisions have to be made.
You might have questions about passing the home to your ex using a quitclaim deed. Here are some of the key issues that arise, and what steps need to be taken in each case.
First, How Should You Deal With the Mortgage?
Transferring the title from co-ownership to one sole owner isn’t hard to do. It can be as easy as signing and recording a quitclaim deed. Usually, the bigger challenge is resolving the debts that two people took on, so they can separate their financial lives.
Mortgages make up the largest component of U.S. household debt. According to the New York Federal Reserve, household debt adds up to about $16 trillion in total. Mortgages are the most expensive loans. For most divorcing couples, this means the home loan is the major debt issue to be resolved.
Is one of the partners planning to keep the home after the divorce? The lender might agree to let the person who keeps the house assume the entire loan responsibility. In such circumstances, the one who keeps the house can keep the loan in place, just as it is. The only change will be the removal of the name of the person who is leaving.
In most situations, though, the lender will expect the person who’s taking over sole ownership of the home to refinance it alone. If that isn’t possible, the home will have to be sold and the mortgage will have to be paid off in full.
As they make plans to separate, the couple needs to have this decision on their radar, so that one can be released from the mortgage and title when the time comes. Staying on the mortgage while releasing the title has come back to haunt many an ex-spouse (and their credit profiles). Even if the split is amicable, the partner who stays in the house could run into financial difficulties, or — for a multitude of possible reasons — fail to make timely payments at some future point. And that could lead to default, calls from collections agencies, and so on.
Good advance planning is a necessity.
Important note: Before signing a deed over to anyone, including an ex-partner, it’s vital to be released from the current mortgage loan. Check your mortgage agreement document. It might have a provision explaining how a party who comes off the deed can get released from the mortgage. If the lender takes issue with removing one person from the loan before that person conveys the deed, the divorce lawyer should be consulted for guidance on avoiding financial risks.
Now, What If You Get the House, But Your Ex Won’t Quitclaim It?
A divorce decree formalizes the division of jointly held assets, including the house. No matter whose name is or isn’t on the house title, the divorce court decides how all the property the couple held together will be divided and distributed.
So, perhaps the divorce court says that you get the house. This by itself doesn’t transfer the house. Nor does it deal with the mortgage debt secured by the house. But it may formalize the timeline by which the partners must separate their financial lives by sorting out the mortgage responsibility.
A divorce court might also issue directions to the lending company to release one of the parties from the mortgage.
All well and good, but a divorce decree can’t transfer the title by itself. The deed must be actually signed over between the partners themselves, into the name of the new sole owner. There are divorces in which an ex refuses to go along with the decree. What happens then?
If you are waiting for a separating partner to sign over the deed, check your divorce papers. Your agreement might direct your ex to comply with the court’s directions. This means your ex has a legal duty to comply with the court’s direction and to sign a deed, such as a quitclaim deed, over to your name.
In a difficult divorce, one of the parties’ lawyers might have to request a court-ordered quitclaim. This can result in holding the ex in contempt of court for refusing to sign over the deed. A hearing for a court order in lieu of the deed might be necessary so that one party can receive sole ownership.
One More Thing. How Does a Name Change Work?
If the homeowner is going through a name change along with the divorce, the key to changing all identifying documents is the court-ordered name change. The homeowner will want to get several official copies of the name change order (official copies have the raised seal from the court).
Check with the county recorder’s office on filing identity documents with your property documents. The deed itself always stays the way it is, once it’s in the public records. Therefore, some ex-spouses who later decide to change their names do so by deeding the house to themselves, using their new name. The simplest way is the quitclaim deed. The transferor (“grantor”) named on the deed is the former name, and the new name appears as the recipient (“grantee”).
But first, call the title company, the homeowner’s insurer, and the mortgage company to alert them that you’re simply doing a name change. The point is to keep your insurance intact, and make sure the lender doesn’t mistake the deed transfer as a conveyance. That could trigger a due on sale clause or incur a transfer tax.
To Be Sure… Lean on the Expert
You always have the ability to draw up a quitclaim deed and convey your ownership interest in your home property to your partner or anyone else. The quitclaim deed presents an efficient way for people who have shared a home to pass their own interest in the real estate from one to the other.
The quitclaim deed leaves one party as the sole title holder. The new sole owner may then refinance or sell the home, independent of the other person’s approval. The new sole owner may also designate the home to the person they choose through a last will and testament, or pass it along to the next generation by a transfer on death deed (where available).
Of course, when two people are involved with one home, it’s important to understand the consequences before anyone makes decisions that impact the title. In a divorce or legal separation, the advice of your lawyer, and ultimately the orders of a court, will steer you though the right course of action. Before making any decisions on property you have owned or co-owned during your legal union or marriage, consult with a local family law attorney. You’ll need a lawyer (even lawyers go to lawyers!) to review the facts, and understand the way current law applies to your particular circumstances.
Deeds.com: Deeds and Divorce (Jun. 25, 2020).
Dan Burns for Reuters: U.S. Household Debt Nears $16 Trillion, But Mortgage, Auto Loan Demand Wanes – New York Fed (May 10, 2022; citing the Federal Reserve Bank of New York to report that U.S. household debt it hitting new records, with the first quarter of the year “driven almost entirely by a $250 billion increase in home loan balances”).
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