In the previous articles, I discussed Real Estate Challenges During a Divorce and some nuances and legal situations of Splitting Property After Divorce. Whether you choose to transfer ownership to one spouse or continue co-owning, understanding the process can help make the transition smoother. Here’s what you need to know about deeding a property over after divorce and how to successfully co-own if you decide to keep the property together.

Option 1: Deeding the Property Over

If one spouse wants to keep the property while the other gives up their share, transferring ownership through a deed is the most common solution. Here’s how to do it:

Step 1: Agree on the Terms

Both parties must agree on who will take full ownership of the property. This is often part of the broader divorce negotiations and is typically documented in the divorce decree or marital settlement agreement. During this stage, it’s important to consider:

• Equity distribution: Determine how much equity each spouse has in the home and whether one party will compensate the other with a buyout or offset through other assets (like retirement accounts or vehicles).
• Occupancy: Decide whether one spouse will continue living in the property and for how long, especially if children are involved.
• Debts and liabilities: Address any outstanding mortgage balances, property taxes, or liens and who will be responsible for them.
• Timing: Agree on when the ownership transfer will occur (e.g., immediately after divorce, or after refinancing).

Having these terms laid out clearly from the start can help avoid confusion or conflict later in the process.

Step 2: Choose the Right Deed

There are different types of deeds to transfer ownership:

• Quitclaim Deed: The most common in divorce cases, this transfers any ownership interest from one spouse to the other without guaranteeing a clear title.
• Warranty Deed: Provides a guarantee that the property title is clear.
• Grant Deed: A middle ground between the two, ensuring the grantor has not transferred the property to someone else.

A real estate attorney can help determine the best option for your situation.

Step 3: Handle the Mortgage

Even if the deed transfers ownership, the mortgage remains the responsibility of both parties unless it is refinanced. This means the spouse who no longer owns the home could still be financially liable if payments are missed. Options include:

• Refinancing the Mortgage: The spouse keeping the home applies for a new mortgage in their name only, removing the other from the loan.
• Loan Assumption: Some mortgages may allow for a loan assumption, where one spouse formally takes over the mortgage without a full refinance (subject to lender approval).
• Indemnification Agreement: A legal document where the spouse retaining the home agrees to be solely responsible for mortgage payments, offering some protection—but not eliminating risk—for the other spouse.

It’s important to speak with the mortgage lender and possibly a financial advisor to determine the best route.

Step 4: File the Deed

Once the deed is signed and notarized, it must be recorded with the county clerk’s or recorder’s office in the county where the property is located. This process officially updates public records to reflect the new ownership. Here’s what to keep in mind:

• Filing Fees: Each county has its own filing fees, so check in advance.
• Supporting Documents: You may need to submit additional paperwork, such as a Preliminary Change of Ownership Report or divorce decree.
• Proof of Recording: After filing, request a copy of the recorded deed for your records.

Proper recording protects the new owner’s rights and ensures there are no legal questions about property ownership later on.

Option 2: Co-Owning the Property

Some divorced couples choose to co-own a property, whether for financial reasons or to provide stability for children. If you decide to co-own, consider the following:

1. Establish Clear Ownership Terms

• Will both spouses be listed as co-owners with equal shares?
• What happens if one person wants to sell their share?
• How will costs (mortgage, taxes, repairs) be split?

Having a legally binding co-ownership agreement can prevent future disputes.

2. Set Rules for Property Use

• Will one person live in the home while the other remains an investor?
• Will it be rented out, with both parties splitting rental income?
• Will there be restrictions on major renovations or selling the home?
• Who is responsible for ongoing maintenance and repairs?
• Will there be scheduled check-ins or reviews to revisit the agreement terms?
• How will utilities, insurance, and HOA dues be handled?

These rules should be documented in a formal co-ownership agreement to minimize misunderstandings and clearly define each party’s responsibilities.

3. Create an Exit Strategy

At some point, one or both parties may want to sell their share. Common exit strategies include:

• Buyout Agreement: One spouse buys out the other’s share at a pre-agreed price or based on a professional appraisal.
• Right of First Refusal: If one party wants to sell, the other has the first opportunity to purchase their share before it’s offered to a third party.
• Scheduled Sale: Agree in advance to sell the property after a certain period (e.g., once children graduate or after a set number of years).
• Third-Party Sale: Put the home on the market and split proceeds according to the agreed-upon ownership shares.
• Partition Action: As a last resort, a court-ordered sale may be pursued if the parties cannot agree, though this can be costly and contentious.

Having these terms outlined in a legal agreement ahead of time can prevent unnecessary stress and conflict later. Having a buyout plan or agreement on how to sell the property ensures a smooth transition when the time comes.

4. Consider Legal and Financial Implications

Co-owning after divorce can have tax and credit implications. For example, both parties may still be responsible for the mortgage, which can impact credit scores if payments are missed. There may also be capital gains tax considerations if the property is sold later, especially if one spouse no longer lives in the home. Additionally, disagreements over maintenance costs or sale timing can lead to legal disputes. It’s best to consult a financial advisor and real estate attorney to ensure both parties are protected.

Making the Right Choice

There’s no one-size-fits-all answer to handling real estate after a divorce. Deeding the property over offers a clean break, while co-ownership can work under the right conditions. No matter what route you take, having a solid legal agreement in place will help protect your financial future.