It’s sad when marriages end, but for many people, it’s an unavoidable fact of life. If you and your spouse are among those who have decided to call it quits, make sure you both take steps to navigate the dissolution of your relationship responsibly and with minimal impact to your financial health.
If you have children with your spouse, it’s even more important to split amicably and walk away whole in as many ways as possible: financially, physically, and emotionally. In the interest of a drama-free experience, you or your spouse may opt to simply walk away from the family home, leaving sole ownership of the property to the other spouse who will continue to live and raise the children there. For many families, this can be an optimal arrangement, especially if the couple’s children have established deep academic and social roots in the community.
But beware: the act of transferring a property from one spouse to the other isn’t as simple as signing over the title. Navigating this step carefully—and with help—is critical because if you do it wrong, you won’t have a legal, liability-free transfer.
When walking away from a property, the non-occupying spouse should absolve themselves of any further debts or liabilities on the home by removing their name from the mortgage as well as from the title.
The person who keeps the home will need to refinance the loan.
If you and your spouse are joint mortgagors on the home loan, you’ll need to make sure that the in-spouse can afford to stay in the home and qualify for their own mortgage. To do this, you’ll need to carefully consider the terms of a new loan, which may not be as favorable as the home’s current loan. Consider the effect of fluctuating interest rates on the in-spouse’s monthly payments, and calculate the in-spouse’s monthly debt-to-income ratio to ensure they can qualify for a loan from a reputable mortgage company. Finally, if compensation by the out-spouse will be reported as income in order for the in-spouse to qualify for a loan, make sure the 6/36 Rule is in effect before submitting any loan applications.
The person who gives up the property will need to sign a quitclaim deed.
If you and your soon-to-be ex-spouse have made it this far and both agree that transferring ownership of the property is still the best course of action in your case, then it’s time for the out-spouse to sign over the property via a quitclaim deed.
The quitclaim deed is a formal agreement by both parties to remove one owner’s name from the property’s title and transfer full responsibility for the property to the other owner. It is at once a release of liability for the out-spouse and a transfer of full interest in the property to the in-spouse.
A note to the out-spouse: Be aware that while a quitclaim deed will take your name off the title of the home, it will not remove you from the mortgage. Filing a quitclaim without taking the additional steps required to separate yourself financially from the property can put you at the mercy of your ex-spouse because any irresponsible behavior on their part, such as missed payments or defaults, will affect your credit score and make you liable for repayment of the loan. The outstanding value of the mortgage debt also counts against you, potentially swinging your debt-to-income ratio out of an acceptable range, making it difficult—and potentially impossible—for you to qualify for a home of your own.
Make sure you package your divorce—and the transfer of your home—correctly. Failing to file even one necessary document can create problems for both ex-spouses: a cloud-on-title that hinders the in-spouse’s ability to sell or refinance the property in the future, and a significant financial liability that could hinder the out-spouse’s ability to qualify for the purchase of a new home of their own.
If you have any questions or need help navigating your next real estate divorce transaction, contact Shannon Rose, Certified Divorce Real Estate Expert.