Post Divorce Transfer of Real Estate

The division of real estate assets post-divorce is a significant task that requires careful attention to detail and adherence to the terms outlined in the divorce decree.  Transferring real estate post-divorce involves two critical steps: (1) the transfer of title and (2) handling any encumbrances or loans against the property. The title transfer process ensures that the legal ownership of the property is accurately updated according to the terms outlined in the divorce decree. Handling the encumbrances associated with the property, such as mortgages or home equity loans, may involve assuming the existing mortgage, refinancing to remove the other party from the loan, or paying off the mortgage entirely if the property is to be sold.

Transfer of Title

The first step in implementing the division of real estate post-divorce is transferring the title. This process ensures that the ownership of the property is correctly reflected according to the divorce decree. Here are the specific steps:

1. Review the Divorce Decree: Ensure you understand the specific terms regarding the property division. The decree will specify who retains ownership or if the property is to be sold.
2. Prepare the Deed: A new deed must be prepared to transfer the property from joint ownership to the designated individual (or from one spouse to the other depending on the circumstances). This may involve a quit claim deed or a warranty deed, depending on the circumstances. A quit claim deed is used to transfer one person’s interest in a property without any guarantees or warranties about the property's title. These deeds are often used in situations where the parties know each other and trust is established, because the recipient (grantee) of a quit claim deed assumes all risk regarding the title and must deal with any potential issues that arise. A warranty deed provides a comprehensive guarantee that the grantor has clear title to the property and the legal right to transfer it. It assures the grantee that the property is free from any liens or encumbrances, except those explicitly stated in the deed. The grantor pledges to defend the title against any future claims. The grantor assumes responsibility for any issues with the title and promises to resolve them, providing greater protection to the grantee.  A warranty deed is much less common in a divorce setting because both parties have been in the house typically and the one leaving it and signing over title to the other is not making any additional guarantees. Either deed may include specific terms from the divorce decree if there are contingencies in the agreement, such as a lien on the property to ensure a settlement payment. Your local property office or county headquarters will likely have template deeds for you to use in your jurisdiction.
3. Sign and Notarize the Deed: The deed usually must be signed in the presence of a notary public. This notarization is crucial for the deed to be legally binding. Some jurisdictions require both parties to sign the deed while most require only the party who is transferring title (giving up ownership) to sign.
4. Record the Deed: The signed and notarized deed must be recorded at the local county recorder's office. This step officially updates the public records to reflect the new ownership. There is typically a reasonable recording fee ($25-$100).

Transfer/Assumption/Refinance of Encumbrances

The second step in implementing the division of real estate post-divorce is handling the encumbrances such as mortgages or home equity loans. Depending on the decree, this may involve transferring, assuming, or refinancing these financial obligations. There are a number of common options in this situation.

Transfer or Assume the Mortgage: If one party is retaining the property, they may need to assume the mortgage. A loan assumption (sometimes called a “name deletion”) in the divorce process involves one spouse taking over the existing mortgage on the property, thereby becoming solely responsible for the loan payments. This process requires the lender’s approval and is contingent on the assuming spouse’s ability to meet the lender’s qualification criteria. Note that not all loans are assumable – you must check with your lender.  If permitted by the lender, a loan assumption can be a practical solution when one spouse wishes to retain the marital home and continue making payments under the current mortgage terms. It eliminates the need for refinancing, which can be beneficial if the existing loan has favorable terms. However, the spouse assuming the loan must prove their creditworthiness and income stability to the lender. Once approved, the loan assumption effectively releases the other spouse from any financial obligation associated with the mortgage, simplifying the financial separation and allowing the retaining spouse to fully own and manage the property independently.

NOTE: It can sometimes be harder to obtain information about a loan assumption or name deletion when you are researching this option. When you call the lender, you should make sure you: (1) Talk directly to a supervisor, as in most cases, the first point of contact will provide inaccurate information; and (2) use the words "modify the note" to remove your spouse when talking to the servicing agent. You want to make sure you are obtaining accurate information and that can be difficult sometimes if the first contact points at the mortgage company don't have the acurate information.

Refinance the Mortgage: Refinancing can be an effective way to remove the other party from the mortgage and possibly secure better loan terms (or could be required if a loan assumption isn’t allowed). Refinancing a mortgage during the divorce process involves obtaining a new loan to replace the existing mortgage, which is particularly useful when one spouse wishes to retain the marital home and remove the other spouse from any financial obligations associated with the property. This process allows the retaining spouse to secure a new mortgage solely in their name, based on their creditworthiness and income. Refinancing can also provide an opportunity to cash out additional equity from the home, which may be necessary to fulfill any financial settlements outlined in the divorce decree. For example, if the decree specifies that one spouse must buy out the other’s equity share, the refinancing process can include a cash-out option to access the necessary funds. This ensures that the spouse retaining the home can meet their obligations without depleting other financial resources. However, it’s important to consider the terms of the new loan, as refinancing can affect interest rates and monthly payments. By refinancing, the retaining spouse gains full control and responsibility over the property, facilitating a clean financial break and compliance with the divorce settlement terms.

Both Stay on the Mortgage with Indemnification: Note that an alternative to refinancing or loan assumption is for both spouses to remain on the existing mortgage after the divorce, while one spouse assumes liability for the loan payments and indemnifies the other against any financial responsibility. This arrangement can be advantageous if refinancing is not feasible due to current market conditions or the financial status of the assuming spouse. In this scenario, the divorce decree should clearly outline that the spouse remaining in the home will be solely responsible for making the mortgage payments and managing any associated encumbrances. Additionally, an indemnity clause should be included to protect the non-resident spouse from any liability should the resident spouse default on the loan. This indemnification is crucial, as it allows the non-resident spouse to purchase a new home without the burden of the existing mortgage affecting their creditworthiness. By clearly defining these responsibilities in the divorce agreement, both parties can move forward with their financial plans while ensuring that the non-resident spouse's financial stability is safeguarded. This solution requires careful legal drafting to ensure all terms are enforceable and provide the necessary protections for both parties.

Alternative: Selling the Property

In some cases, the divorce decree may specify that the property be sold and the proceeds divided. This option can simplify the division of real estate assets and eliminate the need for one party to assume or refinance the mortgage. Title can typically remain joint through time of sale which eliminates the need for any additional work in the interim time between divorce and sale of the property.  Here are the typical steps to selling a property post-divorce:

1. Hire a Real Estate Agent: A professional can help market the property, find potential buyers, and navigate the selling process.
2. Prepare the Property for Sale: This may involve making necessary repairs, cleaning, and staging the home to attract buyers. You should discuss how any maintenance or fix up costs to prepare the home for sale should be shared.
3. List the Property: The real estate agent will list the property on various platforms to reach a wide audience of potential buyers.
4. Review Offers: Both parties will need to review and agree on any offers received for the property.
5. Close the Sale: Once an offer is accepted, the sale process proceeds to closing, where the mortgage is paid off, and the remaining proceeds are divided according to the divorce decree.

Settlement Payments Secured by Real Estate

Addressing a settlement payment in post-divorce real estate arrangements often involves ensuring that the agreed-upon financial compensation is secured and executed effectively. This settlement payment, sometimes referred to as an equalization payment, is designed to balance the division of assets, ensuring that both parties receive their fair share of the marital property’s equity. To secure this payment, the retaining spouse may need to obtain financing through methods such as cashing out equity during a mortgage refinance or arranging for a personal loan. This process can provide the necessary funds to compensate the other spouse as stipulated in the divorce decree. Additionally, the divorce agreement should specify timelines and conditions for the payment to ensure compliance and avoid potential disputes. In some cases, the settlement payment may be structured in installments or a payment after time has passed, secured by a lien on the property until fully paid. This lien acts as a legal safeguard, ensuring that the receiving spouse has a claim to the payment even if the retaining spouse defaults. By carefully addressing these financial arrangements and incorporating clear legal provisions, both parties can ensure that the settlement payment is handled efficiently and equitably, facilitating a smoother transition into their post-divorce lives.

By following these steps and understanding the options available, you can effectively manage the division of real estate assets post-divorce. Whether transferring title, handling encumbrances, or selling the property each approach requires careful planning and adherence to legal and financial guidelines. If you need assistance, consulting with a real estate attorney or financial advisor can provide valuable support during this process.