Real property transfer is unfortunately done more often than not without the proper long term thought or implications – Either from the perspective of a real estate attorney or a divorce attorney.
The implications of transferring non-marital property:
The implications of transferring non-marital property (real estate) into some type of co-ownership due to marriage are often overlooked by real estate attorneys when clients first get married and want to ‘share everything.’ Obviously, newly married couples have no intention of eventually getting divorced but let’s face it—the divorce rate in our country is high and the divorce rate for 2nd and 3rd marriages is even higher. It’s imperative that real estate attorneys are equipped to counsel their clients prior to transferring ownership and are knowledgeable when transferring title, and the gifting of ownership in real property.
It’s important to realize as well as explain to clients that when transferring the equity of the nonmarital property to a new co-owned marital property, that the transferring spouse is now putting their pre-marital assets into the marital pot. Yes, this can be rebutted yet rarely is.
Equally important is the required knowledge of divorce attorneys to understand the implications of how marital property is currently vested as opposed to what happens once a judgment for divorce is entered. It is very important as a divorce attorney to order a full title report on the marital home. The full title report will provide information on outstanding liens such as active first mortgage and open lines of credit as well as the recorded legal description of the property needed for conveying title.
Why is it important to understand how title is currently vested? A number of reasons. Ordering a full title report is going to identify how title is currently vested. It’s important to understand how divorce impacts how title is vested.
Tenancy by the Entirety:
The most common method of spouses taking joint ownership where applicable. Tenancy by the Entirety; however, does NOT survive divorce. Once a judgment for divorce is entered, Tenancy by the Entirety defaults to Tenancy in Common. Transfer of title requires signatures of BOTH spouses.
Joint Tenancy:
Another common method of spouses taking joint ownership. In some states, the judgment for divorce may affect Joint Tenancy and default to Tenancy in Commons similar to the effect on Tenancy by the Entirety. Transfer of title requires signatures from only the spouse granting the transfer of ownership.
Excellent Example:
What’s the big deal? Let’s assume that Bill and Jane currently hold ownership to their marital home as Tenancy by the Entirety. For tax purposes, they elect to remain as co-owners until their son graduates from high school. In the meantime, Jane remarries John and then, unfortunately, dies prior to selling the marital home. It is important to know that Tenancy by the Entirety defaults to Tenancy In Common upon the entry of the divorce judgment—there is a chance that Bill and John may now be co-owners in the marital home!
This is an excellent example of why divorce attorneys and real estate attorneys either network together or cross boundaries with shared knowledge. Additionally, many title companies will acknowledge that many times the transfer of ownership in divorce situations often requires new documents, new signatures, etc. because it was not verified beforehand how ownership in the marital home was currently vested.
Avoid the post-decree issues of real property transfer and advise your clients to order a full title report– it may save time, money and liability in the end.
Do you need to talk with a Certified Divorce Lending Professional? Our consultations are at no cost or obligation to you – we are here to help! Contact us today.
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