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  • Writer's pictureAlan Jacobs

What Happens to Co-Owned Property Upon Divorce?

Married people need to know that, upon divorce, by operation of law, they no longer own their home as tenants by the entirety. Upon divorce, their ownership interests automatically converted to tenancy in common. Remember: tenants in common do not automatically have rights of survivorship.

Let’s walk through an example of the most common marital property: the marital home.

Often in divorce, one spouse will remain in the home (Jane), while the other (Jack) sets up another residence. To conform with law, ownership rights are typically transferred to the spouse who retains the marital home, Jane, through a vehicle called a Quit Claim Deed. Typically Jane will “buy out” Jack’s interest in the home, usually equal to 50% of its value (calculated by subtracting the outstanding mortgage(s) from the appraised value of the property).

Now, in order to make Jack whole, he must not only be paid for his share of the property but be relieved of his liabilities associated with ownership — i.e. he must be removed from the mortgage. Usually the mortgage is in both parties’ names.

There are two ways to remove Jack from the mortgage. Some banks allow something called an “assumption” which is a somewhat less labor intensive and expensive option than the more typical choice of a mortgage refinance. Understandably, the holder of the mortgage (the bank) will not simply release a debtor from a loan. That would render the loan more insecure, causing it to be insured by only one individual rather than two. Refinancing the loan under Jane, means she pays off the joint loan signed by both her and Jack, and takes a new mortgage in her name alone. This process is somewhat time consuming. The property is typically transferred and new deed signed concomitantly with the “selling” spouse being removed from the mortgage. This is the most common scenario.

There are multiple ways to handle a similar fact pattern when the parties’ specific circumstances require creative solutions. In the event the parties will continue to jointly own the home (or any property) post- divorce, they should consider how to handle survivorship interests. Parties may need to modify the property deed to include “rights of survivorship,” or redraft their Wills (or add Codicils) to expressly bequeath the property to the surviving ex-spouse. It will be important to ensure that all attendant legal documentation reflects the intended ownership rights and interests. While this will be reflected in the Marital Settlement Agreement, other legal documents must be properly filed to coincide with the parties’ agreement and reflect the intended property rights, specifically those which are no longer secured by the legal status of marriage.

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