Real Estate Considerations in Divorce

There are many advantages to owning real property as tenants by the entirety. First, because each party is deemed to own the entire property, neither party can unilaterally transfer or encumber his or her interest. Also, property that is owned as a tenancy by the entirety cannot be made available to satisfy the debts of only one of the two spouses. Neu v. Andrews, 528 So. 2d 1278, 1279 (Fla. 4th DCA 1988). In other words, a creditor who obtains a judgment against only one spouse cannot levy on the property, nor can one spouse mortgage the property without the consent of the other. This is a significant benefit that is not available to those who hold the property as tenants in common or joint tenants. Additionally, upon the death of either one of the spouses, the deceased spouse's interest immediately and automatically passes to the surviving spouse. This is known as the “right of survivorship,” which allows the surviving spouse to own the property outright without having to go through any probate proceedings. This is likewise available in a joint tenancy, but not a tenancy in common.

It is not uncommon for a couple to continue to own real property together after they are divorced. The moment a final judgment dissolving the marriage is entered by the court, the tenancy by the entirety will automatically become a tenancy in common. McCarthy v. McCarthy, 922 So. 2d 223 (Fla. 3d DCA 2005). In a tenancy in common, each person only owns a specified percentage interest in the property (or equal shares if no other percentage is specified). Accordingly, when two people are divorced and continue to own real property together, their ownership changes from a tenancy by the entirety to a tenancy in common. There are several potential problems this can pose.

First, either tenant in common is free to transfer or mortgage his or her interest without the consent of the other. This means that either former spouse could end up co-owning the property with a complete stranger in the event the other former spouse sells or transfers his or her interest in the property. Similarly, a creditor of one former spouse can levy on his/her interest and have it sold to satisfy a judgment, so the other former spouse could end up owning the property jointly with that creditor or a third party who buys it at the sale. Additionally, a tenant in common does not have a right of survivorship. This means that, upon the death of one of the two former spouses, the interest in the property does not immediately pass to the other, but rather passes by the will of the deceased former spouse, or by intestacy (i.e., the statutory law of intestate succession) if there was no will. Even if the deceased former spouse provided in his or her will that the spouse's interest in the property should pass to the co-owning ex-spouse, the surviving ex-spouse will still have to go through probate proceedings before he or she can receive that interest, thus incurring more costs. It is obviously important for someone who is or will be newly divorced to realize the potential pitfalls associated with continuing to own property with his or her former spouse as tenants in common, so that he or she may proactively address the possible problems that may result.

Tax Considerations

Real property conveyances in Florida are generally subject to state documentary stamp tax when the deed is recorded. The documentary stamp tax rate for documents that transfer an interest in real property is currently 70 cents per $100 (except for Miami-Dade County). However, the transfer of a marital home from one spouse to another pursuant to a divorce is generally exempt from the payment of this tax. Therefore, a person going through a divorce should consider structuring the divorce settlement to provide for the transfer of the property to a spouse as part of the divorce settlement, if possible, rather than selling the home after the divorce to the former spouse or a third party, since this could save thousands of dollars in documentary stamp taxes.

In Florida, documentary stamp tax is also due when a promissory note is given to evidence a debt (the rate for this is 35 cents per $100), and intangibles tax is due if the promissory note (or any contingent obligation in the absence of a promissory note) is secured by a mortgage (the rate for this is 2 mills, which means the amount owed multiplied by 0.002). It is important to keep this in mind in the event one spouse gives the other a promissory note secured by a mortgage on the home as part of a divorce settlement because the parties will need to allocate and pay these taxes as part of the settlement.

As an initial proposition, consider whether one spouse's obligation to the other should even be evidenced by a promissory note or secured by a mortgage on the home. If the amount to be paid by one spouse to the other is very large, triggering a large tax, it is worthwhile to consult a real estate or tax attorney to determine if the obligation can be structured, evidenced and/or secured in a way that will avoid the imposition of the tax. Promissory notes and mortgages are convenient ways to evidence and secure one spouse's obligation to give the other spouse money pursuant to a settlement, but they are not the only ways. Alternatives are available, but are too complicated to discuss here. If the amount of tax payable on a promissory note and mortgage is prohibitive, just remember that there may be other options available, and investigate them with the assistance of an expert.

If the parties elect to transfer the home to one spouse, the IRS allows former spouses to transfer property to one another free from federal taxes if the transfer is “incident to divorce.” The IRS includes specific time restrictions in the definition of “incident to divorce,” so an attorney or tax professional should be consulted to ensure that the transfer complies with IRS requirements.

Mortgages

If the parties agree to use a note and mortgage, it is likely that the spouse to whom the obligation is payable will be receiving a second mortgage on the home, which would be subordinate to any existing first mortgage. In this situation, it is important to examine the first mortgage to make sure that the granting of a second mortgage is not a default under the first mortgage. Assuming a second mortgage is permitted, there are many provisions that the party receiving the second mortgage (the “lender spouse”) should consider including in the mortgage in order to protect his/her interest from being extinguished by foreclosure of the first mortgage.

• First, the lender spouse would want provisions whereby the spouse giving the mortgage on the home (the “borrower spouse”) agrees to pay all amounts due under the first mortgage in a timely fashion, to deliver to the lender spouse proof of payment upon request, to perform the covenants and conditions in the first mortgage, to keep the first mortgage free from default, and to notify the lender spouse immediately if any default does occur.
• The lender spouse may also wish to require that the borrower spouse obtain his or her written consent prior to modifying the first mortgage, or agreeing with the first mortgage holder to waive any payments or extend the period of repayment.
• The lender spouse would also benefit from a provision allowing the lender spouse to cure any default under the first mortgage in order to protect his/her second mortgage position from a possible foreclosure of the first mortgage. In such a case, the lender spouse would want to include a provision that entitles him or her to reimbursement for any payments made to the first mortgage holder on behalf of the borrower spouse in order to avoid a default, plus interest.
• Last, the second mortgage should provide that any default under the first mortgage would constitute a default of the second mortgage, so that the lender spouse could then declare the entire debt due and payable.

There are other provisions that could be included in a second mortgage, but those mentioned above are important to keep in mind in order to protect the lender spouse's second mortgage position.

Unfortunately, it is very common for a divorcing couple to own a home that has negative equity (meaning they owe more on their mortgage note than the home is worth). If a divorcing couple is selling the former marital home for less than the outstanding balance due on their mortgage (a situation in which the house is sometimes termed “under water” and the sale is termed a “short sale”), they should be aware of the possible tax consequences. Banks will often approve a short sale, allowing sellers to accept an offer on the home that is less than the amount of the outstanding mortgage loan.

The bank may also forgive the remaining balance of the loan (i.e., not require the sellers to repay the rest of the debt they owe), but this is not automatic and must be requested as part of the short sale approval. Normally, such a transaction would give rise to “discharge of indebtedness” income, which typically must be included in one's gross income for federal tax purposes, since the IRS regulations provide that if a creditor forgives a debt that you owe, you have received a benefit which is taxable as if you had received income in that amount. However, Congress approved an exception to this general rule in the Mortgage Forgiveness Debt Relief Act of 2007 (the “Relief Act,” which only applies to debts forgiven in calendar years 2007 through 2012). Under the Relief Act, taxpayers may exclude discharge of indebtedness income from their gross income for federal tax purposes if the indebtedness that was discharged was associated with their principal residence, and mortgage debt forgiven in connection with a foreclosure qualifies for this relief. However, the IRS regulations must be consulted to make sure that the residence qualified as the principal residence during the tax year in which the debt was forgiven.

If the homeowners do not qualify for the Relief Act and must report the discharge of indebtedness as income on their tax returns, it would be wise to determine whether the parties will file their tax return jointly and divide their tax liability, or whether they will file separate returns. If they file separately, they may agree in advance to split the tax liability, with each claiming one-half (or some other percentage) of the discharge of indebtedness income on their individual returns. Any of these situations may be specifically agreed to and included in the parties' settlement agreement to avoid any discord or confusion when tax returns are due after the divorce is final.

If the parties become tenants in common after the divorce and are still attempting to sell the former marital home, they generally share equally the cost of all payments due in regard to the former marital home, such as mortgage payments, taxes, repairs and insurance, which are necessary to maintain the home until it is sold. Green v. Green, 16 So. 3d 298, 300 (Fla. 1st DCA 2009). Therefore, if one former spouse makes these payments, he or she is generally entitled to a credit for half of the payments when the home is sold. Id. An exception to this rule exists when the mortgage payments are made to meet child support obligations (i.e., if mortgage payments are accepted in lieu of a certain amount of child support). Id. It is also not uncommon for parties to agree in their marital settlement agreement that one spouse should receive credit for the amount he or she has solely and individually paid toward the mortgage, taxes, or insurance during the divorce proceedings, especially if neither spouse was living in the home at the time.

Selling the Home and Transferring by Deed

It may be wise for divorcing spouses to enter into a confidential agreement specifying certain details of the sale process in the event that the former marital home is still on the market when the divorce is finalized. In light of the current depressed housing market, it could take months or even years before the parties receive an acceptable offer for the purchase of the former marital home. It is sometimes difficult for the former spouses to agree after the divorce proceedings on many aspects of the sale process. In order to avoid future disputes regarding the sale, the parties should consider addressing those matters in advance during settlement negotiations. Their agreements would not be disclosed to anyone other than their attorneys, nor filed with the court except for enforcement purposes. These agreements could stipulate certain decisions that the parties agree to in advance, such as the price they both agree to accept, the realtor they would like to use, how long they will keep the house on the market before lowering the asking price, a possible means of making periodic purchase price adjustments if the house does not sell, and similar decisions. Agreeing to these terms in advance as part of the global divorce settlement may avoid future discord.

If the divorce settlement provides that one spouse is to receive a deed from the other, transferring title to the former marital home, it may be wise for the other spouse to insist that the deed be held in escrow until the spouse retaining the home has been able to refinance any prior mortgage debt on the home, thereby releasing the other spouse from liability. Often, parties will sign a deed in connection with a divorce settlement, transferring one spouse's interest in the former marital home to the other. However, if both parties were originally liable for the mortgage debt on the home, both will remain liable until the mortgage is refinanced by the spouse who keeps the home. If the deed is recorded while both parties are still liable for the mortgage debt, the spouse who is not keeping the home may be forced to pay the debt associated with a home in which he or she no longer has any interest. It may be advisable to put time constraints into the marital settlement agreement on the spouse keeping and refinancing the home, so that if the mortgage is not refinanced so as to release the other spouse from liability for the mortgage debt within a stipulated time period, the parties may go to mediation to decide how to proceed, force the sale of the house, or come up with some other mutually agreeable solution.

One last tip to consider is the type of deed used to transfer the marital home between the spouses. Many Florida family law attorneys have the parties execute a quit claim deed to make this transfer. Quit claim deeds are often used to clear title defects and release outstanding interests in property under circumstances where warranties of title are not an issue. A quit claim deed offers no warranties to the transferee regarding the status of title to the property, but merely transfers any interest held by the transferor, subject to any claims that may exist against the transferor. However, when someone purchases property from a third party, he or she will usually get a warranty deed containing what are called “warranties of title.” There are two types of warranty deeds: general warranty deeds and special warranty deeds. When a general warranty deed is used, the transferor is giving a warranty that, among other things, the transferor has the right to transfer the property to the new owner, the title is free and clear of any claims by third parties, and the transferor will defend the new owner's title against such claims. A special warranty deed is similar, but limits the transferor's liability to claims by third parties arising under the transferor (but not under prior owners).

If the divorcing parties execute a quit claim deed to transfer the property between them before the entry of the final judgment dissolving their marriage, a quit claim deed alone should be sufficient. This is because the parties still own the property as tenants by the entirety while they are legally married. As mentioned above, during their marriage, neither spouse may transfer or encumber his or her interest in the home without the consent of the other. If one transfers his/her interest to the other while they are still married, a third party's claim against one spouse's interest in the property (such as a mortgage, judgment or lien arising solely under that spouse) will not have attached to the property, so the spouse receiving the quit claim deed will obtain good title.

However, it is not advisable to use a quit claim deed to transfer title to the former marital home between spouses after the entry of the final judgment dissolving their marriage. After the divorce, either party's interest in the home can be encumbered by a mortgage, judgment or lien without the knowledge or consent of the other. Additionally, if such a mortgage, judgment or lien arose before the divorce, even though it did not encumber the home at that time because the home was held as a tenancy by the entirety, upon the dissolution of the marriage, it will automatically encumber the interest of the former spouse who is named in the mortgage, judgment or lien because the home has become a tenancy in common as a result of the divorce. If this problem arises, under a quit claim deed the transferee will have no recourse against the transferor and may be stuck with a property having title defects.

In the case of a transfer between former spouses after the divorce, it is prudent to use a warranty deed of either type. Since it is probable that the two spouses received a warranty deed from the party who initially sold them the marital home, as well as an owner's title insurance policy giving them title insurance on the home, a special warranty deed should be sufficient to transfer the title between the spouses after they divorce, so that the spouse receiving title gets the benefit of warranties of title. Alternatively, if a quit claim deed is to be used, the spouse receiving the quit claim deed should insist that the transferring spouse provide warranties of title separately, either in the marital settlement agreement or a separate document executed in conjunction with the quit claim deed. These warranties of title would allow the spouse receiving the deed to make a legal claim against the other spouse for compensation at a later date if a title defect existed in violation of the warranties.

Regardless of whether the parties decide to utilize a warranty deed or a quit claim deed to transfer title, it is advisable for the transferee spouse to obtain a title report on the property at the time they receive the deed from the other spouse, to verify that there are no judgments, liens or other claims against the title arising under the transferor spouse. If there are, they should be addressed in the context of the settlement in order to ensure that the spouse receiving title to the home does not have to address them later.

Conclusion

Besides those discussed above, there may be other real property or tax issues that arise during divorce proceedings. If you or someone you know faces these kinds of problems, it is advisable to discuss with your family law attorney the various real property and tax issues inherent in divorce proceedings so that you can determine the options available to best protect your financial and emotional interests.

While every divorce has its own unique issues and challenges, most separating couples face the same problems relating to the disposition of the former marital home. If real property issues are not thoroughly considered during divorce proceedings, financial and emotional problems could linger for years after the divorce is final. This article highlights several important issues that everyone who is going through a divorce or who is recently divorced should consider with regard to the disposition of marital real property, and offers some tips on how to address them. It is important to note that the information contained in this article is based on Florida law, so practitioners should consult the applicable laws governing their jurisdictions regarding these issues.

Types of Ownership

In Florida, there are three types of concurrent ownership of real property that can result when two people own real property together: a joint tenancy, a tenancy in common, and a tenancy by the entirety. Each type of ownership has different attributes. A married couple that acquires real property in Florida will automatically own the property as “tenants by the entirety” unless they specify otherwise. In a tenancy by the entirety, each, the husband and wife, is deemed to own the entire property. Only legally married spouses can own property in this manner. If two people own property together but are not married (including after the marriage has been dissolved), they can only own property as tenants in common or joint tenants (the attributes of these types of ownership are further distinguished below).

There are many advantages to owning real property as tenants by the entirety. First, because each party is deemed to own the entire property, neither party can unilaterally transfer or encumber his or her interest. Also, property that is owned as a tenancy by the entirety cannot be made available to satisfy the debts of only one of the two spouses. Neu v. Andrews , 528 So. 2d 1278, 1279 (Fla. 4th DCA 1988). In other words, a creditor who obtains a judgment against only one spouse cannot levy on the property, nor can one spouse mortgage the property without the consent of the other. This is a significant benefit that is not available to those who hold the property as tenants in common or joint tenants. Additionally, upon the death of either one of the spouses, the deceased spouse's interest immediately and automatically passes to the surviving spouse. This is known as the “right of survivorship,” which allows the surviving spouse to own the property outright without having to go through any probate proceedings. This is likewise available in a joint tenancy, but not a tenancy in common.

It is not uncommon for a couple to continue to own real property together after they are divorced. The moment a final judgment dissolving the marriage is entered by the court, the tenancy by the entirety will automatically become a tenancy in common. McCarthy v. McCarthy , 922 So. 2d 223 (Fla. 3d DCA 2005). In a tenancy in common, each person only owns a specified percentage interest in the property (or equal shares if no other percentage is specified). Accordingly, when two people are divorced and continue to own real property together, their ownership changes from a tenancy by the entirety to a tenancy in common. There are several potential problems this can pose.

First, either tenant in common is free to transfer or mortgage his or her interest without the consent of the other. This means that either former spouse could end up co-owning the property with a complete stranger in the event the other former spouse sells or transfers his or her interest in the property. Similarly, a creditor of one former spouse can levy on his/her interest and have it sold to satisfy a judgment, so the other former spouse could end up owning the property jointly with that creditor or a third party who buys it at the sale. Additionally, a tenant in common does not have a right of survivorship. This means that, upon the death of one of the two former spouses, the interest in the property does not immediately pass to the other, but rather passes by the will of the deceased former spouse, or by intestacy (i.e., the statutory law of intestate succession) if there was no will. Even if the deceased former spouse provided in his or her will that the spouse's interest in the property should pass to the co-owning ex-spouse, the surviving ex-spouse will still have to go through probate proceedings before he or she can receive that interest, thus incurring more costs. It is obviously important for someone who is or will be newly divorced to realize the potential pitfalls associated with continuing to own property with his or her former spouse as tenants in common, so that he or she may proactively address the possible problems that may result.

Tax Considerations

Real property conveyances in Florida are generally subject to state documentary stamp tax when the deed is recorded. The documentary stamp tax rate for documents that transfer an interest in real property is currently 70 cents per $100 (except for Miami-Dade County). However, the transfer of a marital home from one spouse to another pursuant to a divorce is generally exempt from the payment of this tax. Therefore, a person going through a divorce should consider structuring the divorce settlement to provide for the transfer of the property to a spouse as part of the divorce settlement, if possible, rather than selling the home after the divorce to the former spouse or a third party, since this could save thousands of dollars in documentary stamp taxes.

In Florida, documentary stamp tax is also due when a promissory note is given to evidence a debt (the rate for this is 35 cents per $100), and intangibles tax is due if the promissory note (or any contingent obligation in the absence of a promissory note) is secured by a mortgage (the rate for this is 2 mills, which means the amount owed multiplied by 0.002). It is important to keep this in mind in the event one spouse gives the other a promissory note secured by a mortgage on the home as part of a divorce settlement because the parties will need to allocate and pay these taxes as part of the settlement.

As an initial proposition, consider whether one spouse's obligation to the other should even be evidenced by a promissory note or secured by a mortgage on the home. If the amount to be paid by one spouse to the other is very large, triggering a large tax, it is worthwhile to consult a real estate or tax attorney to determine if the obligation can be structured, evidenced and/or secured in a way that will avoid the imposition of the tax. Promissory notes and mortgages are convenient ways to evidence and secure one spouse's obligation to give the other spouse money pursuant to a settlement, but they are not the only ways. Alternatives are available, but are too complicated to discuss here. If the amount of tax payable on a promissory note and mortgage is prohibitive, just remember that there may be other options available, and investigate them with the assistance of an expert.

If the parties elect to transfer the home to one spouse, the IRS allows former spouses to transfer property to one another free from federal taxes if the transfer is “incident to divorce.” The IRS includes specific time restrictions in the definition of “incident to divorce,” so an attorney or tax professional should be consulted to ensure that the transfer complies with IRS requirements.

Mortgages

If the parties agree to use a note and mortgage, it is likely that the spouse to whom the obligation is payable will be receiving a second mortgage on the home, which would be subordinate to any existing first mortgage. In this situation, it is important to examine the first mortgage to make sure that the granting of a second mortgage is not a default under the first mortgage. Assuming a second mortgage is permitted, there are many provisions that the party receiving the second mortgage (the “lender spouse”) should consider including in the mortgage in order to protect his/her interest from being extinguished by foreclosure of the first mortgage.

• First, the lender spouse would want provisions whereby the spouse giving the mortgage on the home (the “borrower spouse”) agrees to pay all amounts due under the first mortgage in a timely fashion, to deliver to the lender spouse proof of payment upon request, to perform the covenants and conditions in the first mortgage, to keep the first mortgage free from default, and to notify the lender spouse immediately if any default does occur.
• The lender spouse may also wish to require that the borrower spouse obtain his or her written consent prior to modifying the first mortgage, or agreeing with the first mortgage holder to waive any payments or extend the period of repayment.
• The lender spouse would also benefit from a provision allowing the lender spouse to cure any default under the first mortgage in order to protect his/her second mortgage position from a possible foreclosure of the first mortgage. In such a case, the lender spouse would want to include a provision that entitles him or her to reimbursement for any payments made to the first mortgage holder on behalf of the borrower spouse in order to avoid a default, plus interest.
• Last, the second mortgage should provide that any default under the first mortgage would constitute a default of the second mortgage, so that the lender spouse could then declare the entire debt due and payable.

There are other provisions that could be included in a second mortgage, but those mentioned above are important to keep in mind in order to protect the lender spouse's second mortgage position.

Unfortunately, it is very common for a divorcing couple to own a home that has negative equity (meaning they owe more on their mortgage note than the home is worth). If a divorcing couple is selling the former marital home for less than the outstanding balance due on their mortgage (a situation in which the house is sometimes termed “under water” and the sale is termed a “short sale”), they should be aware of the possible tax consequences. Banks will often approve a short sale, allowing sellers to accept an offer on the home that is less than the amount of the outstanding mortgage loan.

The bank may also forgive the remaining balance of the loan (i.e., not require the sellers to repay the rest of the debt they owe), but this is not automatic and must be requested as part of the short sale approval. Normally, such a transaction would give rise to “discharge of indebtedness” income, which typically must be included in one's gross income for federal tax purposes, since the IRS regulations provide that if a creditor forgives a debt that you owe, you have received a benefit which is taxable as if you had received income in that amount. However, Congress approved an exception to this general rule in the Mortgage Forgiveness Debt Relief Act of 2007 (the “Relief Act,” which only applies to debts forgiven in calendar years 2007 through 2012). Under the Relief Act, taxpayers may exclude discharge of indebtedness income from their gross income for federal tax purposes if the indebtedness that was discharged was associated with their principal residence, and mortgage debt forgiven in connection with a foreclosure qualifies for this relief. However, the IRS regulations must be consulted to make sure that the residence qualified as the principal residence during the tax year in which the debt was forgiven.

If the homeowners do not qualify for the Relief Act and must report the discharge of indebtedness as income on their tax returns, it would be wise to determine whether the parties will file their tax return jointly and divide their tax liability, or whether they will file separate returns. If they file separately, they may agree in advance to split the tax liability, with each claiming one-half (or some other percentage) of the discharge of indebtedness income on their individual returns. Any of these situations may be specifically agreed to and included in the parties' settlement agreement to avoid any discord or confusion when tax returns are due after the divorce is final.

If the parties become tenants in common after the divorce and are still attempting to sell the former marital home, they generally share equally the cost of all payments due in regard to the former marital home, such as mortgage payments, taxes, repairs and insurance, which are necessary to maintain the home until it is sold. Green v. Green , 16 So. 3d 298, 300 (Fla. 1st DCA 2009). Therefore, if one former spouse makes these payments, he or she is generally entitled to a credit for half of the payments when the home is sold. Id. An exception to this rule exists when the mortgage payments are made to meet child support obligations (i.e., if mortgage payments are accepted in lieu of a certain amount of child support). Id. It is also not uncommon for parties to agree in their marital settlement agreement that one spouse should receive credit for the amount he or she has solely and individually paid toward the mortgage, taxes, or insurance during the divorce proceedings, especially if neither spouse was living in the home at the time.

Selling the Home and Transferring by Deed

It may be wise for divorcing spouses to enter into a confidential agreement specifying certain details of the sale process in the event that the former marital home is still on the market when the divorce is finalized. In light of the current depressed housing market, it could take months or even years before the parties receive an acceptable offer for the purchase of the former marital home. It is sometimes difficult for the former spouses to agree after the divorce proceedings on many aspects of the sale process. In order to avoid future disputes regarding the sale, the parties should consider addressing those matters in advance during settlement negotiations. Their agreements would not be disclosed to anyone other than their attorneys, nor filed with the court except for enforcement purposes. These agreements could stipulate certain decisions that the parties agree to in advance, such as the price they both agree to accept, the realtor they would like to use, how long they will keep the house on the market before lowering the asking price, a possible means of making periodic purchase price adjustments if the house does not sell, and similar decisions. Agreeing to these terms in advance as part of the global divorce settlement may avoid future discord.

If the divorce settlement provides that one spouse is to receive a deed from the other, transferring title to the former marital home, it may be wise for the other spouse to insist that the deed be held in escrow until the spouse retaining the home has been able to refinance any prior mortgage debt on the home, thereby releasing the other spouse from liability. Often, parties will sign a deed in connection with a divorce settlement, transferring one spouse's interest in the former marital home to the other. However, if both parties were originally liable for the mortgage debt on the home, both will remain liable until the mortgage is refinanced by the spouse who keeps the home. If the deed is recorded while both parties are still liable for the mortgage debt, the spouse who is not keeping the home may be forced to pay the debt associated with a home in which he or she no longer has any interest. It may be advisable to put time constraints into the marital settlement agreement on the spouse keeping and refinancing the home, so that if the mortgage is not refinanced so as to release the other spouse from liability for the mortgage debt within a stipulated time period, the parties may go to mediation to decide how to proceed, force the sale of the house, or come up with some other mutually agreeable solution.

One last tip to consider is the type of deed used to transfer the marital home between the spouses. Many Florida family law attorneys have the parties execute a quit claim deed to make this transfer. Quit claim deeds are often used to clear title defects and release outstanding interests in property under circumstances where warranties of title are not an issue. A quit claim deed offers no warranties to the transferee regarding the status of title to the property, but merely transfers any interest held by the transferor, subject to any claims that may exist against the transferor. However, when someone purchases property from a third party, he or she will usually get a warranty deed containing what are called “warranties of title.” There are two types of warranty deeds: general warranty deeds and special warranty deeds. When a general warranty deed is used, the transferor is giving a warranty that, among other things, the transferor has the right to transfer the property to the new owner, the title is free and clear of any claims by third parties, and the transferor will defend the new owner's title against such claims. A special warranty deed is similar, but limits the transferor's liability to claims by third parties arising under the transferor (but not under prior owners).

If the divorcing parties execute a quit claim deed to transfer the property between them before the entry of the final judgment dissolving their marriage, a quit claim deed alone should be sufficient. This is because the parties still own the property as tenants by the entirety while they are legally married. As mentioned above, during their marriage, neither spouse may transfer or encumber his or her interest in the home without the consent of the other. If one transfers his/her interest to the other while they are still married, a third party's claim against one spouse's interest in the property (such as a mortgage, judgment or lien arising solely under that spouse) will not have attached to the property, so the spouse receiving the quit claim deed will obtain good title.

However, it is not advisable to use a quit claim deed to transfer title to the former marital home between spouses after the entry of the final judgment dissolving their marriage. After the divorce, either party's interest in the home can be encumbered by a mortgage, judgment or lien without the knowledge or consent of the other. Additionally, if such a mortgage, judgment or lien arose before the divorce, even though it did not encumber the home at that time because the home was held as a tenancy by the entirety, upon the dissolution of the marriage, it will automatically encumber the interest of the former spouse who is named in the mortgage, judgment or lien because the home has become a tenancy in common as a result of the divorce. If this problem arises, under a quit claim deed the transferee will have no recourse against the transferor and may be stuck with a property having title defects.

In the case of a transfer between former spouses after the divorce, it is prudent to use a warranty deed of either type. Since it is probable that the two spouses received a warranty deed from the party who initially sold them the marital home, as well as an owner's title insurance policy giving them title insurance on the home, a special warranty deed should be sufficient to transfer the title between the spouses after they divorce, so that the spouse receiving title gets the benefit of warranties of title. Alternatively, if a quit claim deed is to be used, the spouse receiving the quit claim deed should insist that the transferring spouse provide warranties of title separately, either in the marital settlement agreement or a separate document executed in conjunction with the quit claim deed. These warranties of title would allow the spouse receiving the deed to make a legal claim against the other spouse for compensation at a later date if a title defect existed in violation of the warranties.

Regardless of whether the parties decide to utilize a warranty deed or a quit claim deed to transfer title, it is advisable for the transferee spouse to obtain a title report on the property at the time they receive the deed from the other spouse, to verify that there are no judgments, liens or other claims against the title arising under the transferor spouse. If there are, they should be addressed in the context of the settlement in order to ensure that the spouse receiving title to the home does not have to address them later.

Conclusion

Besides those discussed above, there may be other real property or tax issues that arise during divorce proceedings. If you or someone you know faces these kinds of problems, it is advisable to discuss with your family law attorney the various real property and tax issues inherent in divorce proceedings so that you can determine the options available to best protect your financial and emotional interests.