By Christina Kass
For many people, getting married and buying a home represents the quintessential American dream. Sometimes, however, “happily ever after” doesn’t go exactly as planned, and the marriage is dissolved. When a couple decides to divorce, they may be left wondering how their assets will be divided. This often includes the question of what will happen to their real estate property.
When considering the answer to this question, most couples who go through a divorce find that one of three scenarios applies:
- One spouse keeps the home by buying out the other’s legal interest
- One spouse keeps use and occupancy of the home for a specified period, after which time the house is sold
- The house is sold immediately and any equity is split up between the spouses
One of the most important things for homeowners to remember in the case of a divorce is that the majority of assets or property accumulated during a marriage is marital property — meaning that it is owned by both spouses. In divorce, the name on the title or deed does not always matter. This is the case unless the property was given to or inherited by one spouse.
So, what is the process of determining who gets what with regard to marital property? In Michigan, this division is done through either negotiations or litigation. An experienced divorce attorney can help a couple draft their own mutual agreement, known as a settlement. Spouses who cannot come to an agreement must go to court, where a judge makes decisions for them based on a number of factors.
Since the division of marital property can be a complicated and time-consuming process, it’s helpful for spouses to familiarize themselves with terms often used in divorce proceedings involving real estate, such as:
- Lien – a Michigan lien is a document filed with the county register of deeds that attaches to real estate in the county owned by the debtor identified by the lien. The lien is an encumbrance on the property similar to a mortgage or tax lien.
- Chain of Title – the sequence of historical transfers of title to a property
- Equitable Distribution – the fair, but not necessarily equal, division of marital assets and liabilities acquired during a marriage
- Inherited Property – any tangible good that passes from one party to another at death
- Warranty Deed – a Michigan warranty deed is utilized to convey real estate from one party to another. The deed “warrants” that the seller or grantor has legal authority to sell the property and that the title to the property is free of defects.
- Quit Claim Deed – a Michigan quit claim deed is a form of deed that can be used to convey real estate from one party to another. It is typically used in “close” situations, such as between a creator of a trust and the trust, between close relatives, etc. The conveying party or grantor is not guaranteeing anything about the title, not even his or her ownership of the property.
- Postnuptial Agreement – a contract created by spouses after entering into a marriage that outlines the ownership of financial assets in the event of a divorce
What are the Implications of Divorce on Title Insurance?
Title companies generally have certain requirements that must be met before the title to a property can be changed between divorced spouses. This means the title company will review the divorce decree to ensure that it’s valid and contains all the necessary language. Specifically, the company will look for a final, non-appealable order admitting the decree to the divorce suit.
The decree must have been ordered by the judge at least 30 days prior to closing a sale or refinance so that neither spouse may file an appeal. If the decree is incomplete, a warranty deed may be required, which can delay the process. For a divorce decree to officially transfer title between spouses, it must include language that specifically grants the property to one spouse and divests the other spouse of any and all interest in the property. In most cases the parties prefer to have a deed signed and recorded at the time of completion rather than have to record the divorce decree on public record. If the property is being refinanced or sold, the title insurance company will be able to prepare that document for signing and recording at closing.
In addition, the decree must contain the actual legal description of the property, not just the physical address. This is because the real property records are indexed under the legal description. A decree lacking the legal description recorded with the county is not sufficient to give notice of the title transfer.
Title companies also review divorce decrees between property owners for lien language. What if the decree imposes a lien against the property in favor of one ex-spouse? In this case, the lien must be satisfied before the home is sold or refinanced or the ex-spouse must sign a Release of Lien once the debt is satisfied. If the title company is to pay the lien through the closing, the ex-spouse will be required to sign a Release of Lien before funds can be released to him or her.
At times, people may be surprised to learn that when they were awarded the property through the decree, they acquired it subject to the lien against their ex-spouse — meaning the lien still applies to the property. The lien will continue to encumber the property until the remaining owner is able to pay the debt owed and obtain a Partial Release of Lien on the property. The lien must be paid off at closing if the property is sold or refinanced, or another legal remedy to remove the lien must be sought.
An attorney lien is another type of lien sometimes seen in real estate transactions involving a divorce. With this type of lien, if an attorney is owed compensation for services performed on behalf of his or her client, he or she may have an attorney’s lien on the real estate the client owns. That way, the attorney may obtain his or her fees through the sale of the property. The attorney may also keep the deed to the client’s home until he or she has been paid as agreed.
What Factors Affect the Sale of a Home in a Divorce?
Going through a divorce and selling a home are two stressful life events rife with emotional and financial considerations. While you may want to sell your home as quickly as possible to avoid several more years of paying for the mortgage house payments, insurance, property taxes, and upkeep, you’ll want to take the time to carefully weigh your options.
Among the financial aspects that should be considered are federal capital gains tax ramifications. According to the current capital tax gains law, if you are married and selling a home, you can exclude up to $500,000 in profit. However, if you are single, the capital gains exclusions drop to $250,000. To be eligible, you must have lived in your home for two of the last five years, and the home must be your personal primary residence. You should always consult with your attorney and tax advisors when making these life changes.
In the case of one spouse remaining in the home and buying out the other’s legal interest, a quit claim deed must be filed with the county register of deeds. As mentioned above, a quit claim deed can be a method for transferring property, with no warranties, to another party without going through a closing. In Michigan, this can be as simple as filling out a form, signing it in front of a notary, and paying any transfer taxes, if any, due before recording the deed in the land recorder’s office. Your attorney will help you through this process.
If you decide to sell the home while your divorce is pending, you and your spouse must both sign at closing unless the divorce is final beforehand (30 days after the final decree is ordered). Again, if you finalize your divorce before closing, the decree must contain all the required language and the home’s actual legal description. On the other hand, if you buy a piece of property during your pending divorce, the property is presumed to be community property and your divorce attorney should be consulted.
How Can Vanguard Title Help You Move Forward?
At Vanguard Title, we understand that divorces often come with a host of complex emotions, difficult decisions, and many questions about how to proceed with the sale of your home. We’re here to help you navigate any issues that may arise so you can feel comfortable with your real estate transaction, even when your marital plans take an unexpected turn.
If you or your clients are divorced and are closing on a transaction, the title company will need:
- Copy of the final Judgement of Divorce – commonly referred to as Divorce Decree
- Property address for the property to be sold or refinanced
- Mortgage payoff information authorization form signed with contact information for that entity
- Payoff information for any other liens that need to be discharged
- Deeds, if signed prior to contacting title company
- Name, address, phone number and email address for each spouse and each attorney
- Purchase agreement if selling to a new buyer
- New Lender name and contact info if one of the parties is refinancing the home
- Any other information – we call it the ‘the story’ – that the parties think will be necessary for us to transfer the property correctly