My clients are going through a divorce. What should I know?
The home is almost always a family’s largest and most important asset. Thus, it is the source of much contention in a divorce proceeding. I recommend that divorcing couples go down one of two roads when disposing of the family home.
One, sell the home and divide the proceeds at closing. If the parties cannot decide how to divide proceeds, then deposit the funds with the court or ask your title company to hold the funds in escrow to give the parties more time to decide. (Note, however, that many title companies will not hold funds in escrow for such a purpose.)
Two, one spouse can keep the home. Title is conveyed by Quitclaim Deed and current mortgages or Home Equity Lines of Credit (HELOC) should be refinanced. The equity is divided. Essentially, one spouse “buys” the home from the other spouse.
Despite these two simple solutions, what seems to happen more often than not is that the mortgage remains in one spouse’s name, title is quitclaimed to the other spouse, and mortgage payments are rolled into alimony or assumed by one spouse. Here are a couple of examples of problems caused by this arrangement.
Once, I conducted a closing for a couple who lost all of the equity in their home due to an unworkable arrangement. The ex-wife remained in the home after a divorce but her ex-husband was not removed from title. She was supposed to maintain the property and he was supposed to make mortgage payment. Neither person held up their end of the bargain. The ex-wife refused to make repairs to the home or pay HOA dues so the HOA filed a $22,000 lien. In retaliation, the ex-husband stopped making mortgage payments. Since the ex-husband was serving in the military overseas, the bank could not foreclose. The home deteriorated for four years before a short-sale was finally negotiated and approved.
For another couple, title was conveyed to the ex-wife but the mortgage remained in the ex-husband’s name. The ex-husband continued to make mortgage payments and those payments were deducted from the amount of alimony he was required to pay every month. The problem is that the alimony left over was barely enough to live on. The ex-wife wanted to sell the home but that would have required a short sale and the ex-husband refused to cooperate. If it were not for the assistance of a real estate agent who listed her home pro bono and a church that stepped in to help fund the sale, she would not have been able to sell the home and would have probably been forced into bankruptcy by year end.
In addition, spouses who receive title via a quitclaim could also be assuming unpaid HOA and tax bills, liens and judgments. I’ve encountered several cases of individuals forced to pay off their ex’s credit card bills, unknown Home Equity Lines of Credit, and even unpaid medical bills.
Ultimately, people have to do what is best for them and their families but I always advise that they choose to make a clean break.