A divorcing couple that owns a home must decide what to do with it. There are several options, but all of them can turn out to be legally complex, so it’s essential to consult with a licensed attorney. Educate yourself about the issues involved with this guide to property ownership after divorce.
Who Owns the Home?
Generally speaking, couples buy homes together. The specifics of how they own the property are determined by state law, but their deed to the property will contain both their names and spell out their ownership interests. If only one member of the couple owns the property, however, that person will continue to own it after divorce just as if the couple had remained together unless alternative arrangements are made for property ownership after divorce. An exception is in community property states (see below).
Selling the Property
If the husband and wife have jointly owned the property, they have at least two options for property ownership after divorce. Together they can sell the property to a third party and divide the proceeds, or one spouse can sell his or her interest in the home to the other.
- Selling the property to a third party. The couple can agree to sell the house together and split the equity in a proportion that each of them agree to and the divorce judge approves. (If the divorce occurs in a community property state, the parties will generally take equal shares, as noted below.) From a financial standpoint, it’s a better decision to sell the property jointly before divorcing to take full advantage of capital gains tax benefits. A decision to jointly sell the property removes both parties’ names from the deed and relieves both of them from liability for the mortgage.
- One spouse selling to the other. One spouse can pay the other for their interest in the property. The resulting title transfer takes place by way of a quitclaim deed (the terminology may vary depending on the state) that releases the selling spouse’s interest in the entire property, not just his or her own share. Both parties must sign the quitclaim deed, and a copy of the divorce decree should be attached and made part of the deed. It’s important to realize that even if one spouse no longer owns the property, that spouse is still co-liable for the mortgage with the other until the parties refinance the mortgage to absolve the departing spouse from liability for the loan.
If the parties cannot agree on how to dispose of the home, a judge can order it sold and divide the net equity proceeds between the spouses.
In no case can one spouse simply have the other’s name removed from the home’s title. Either the spouse to be removed must legally agree to it, or a judge must order the removal as part of a divorce settlement. In either case, the departing spouse will likely receive compensation for his equity stake in the property.
Community Property States
Community property laws in nine states govern assets and liabilities in a marriage and property ownership after a divorce. The states are Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington and Wisconsin. In these states, both spouses generally are treated as equally owning all assets acquired during a marriage. This is true even if the asset is titled in the name of only one spouse. The only exceptions are gifts and inheritances, which belong solely to the recipient, and assets one spouse owned prior to the marriage.