Doing the deed: Some property-related tips for divorcing couples
If you are representing a spouse in a divorce, make sure to follow through on issues relating to the disposition of the marital homestead. By ‘follow through,’ I mean do not just make a note of what should happen in the Marital Settlement Agreement and call it a day. Rather, make sure that the property gets quitclaimed and recorded as necessary and make sure that the mortgage is refinanced or that some other agreement is put in place to remove the non-owning spouse from any mortgage that encumbers the property. It is in the interests of both divorcing spouses that this issue be handled diligently.
For the spouse receiving the property
Have the Property Quitclaimed to You Alone
If you are the spouse that will be receiving the property, it is essential that it be deeded to you during the divorce. It is very difficult to get the opposing party to sign a quit claim deed to you after the case is closed, and it can be time-consuming and costly to bring the matter back into court.
Avoid creating a situation that will almost certainly require you to file a motion or a new case to enforce a settlement agreement. The issue of obtaining a quit claim deed can more expeditiously be handled while the divorce case is pending and the parties still have leverage over one another.
If you are representing a divorcing spouse, you absolutely must pull copies of the most recent deed(s) and you should order a title commitment when addressing property issues. Remember, a Marital Settlement Agreement is a contract which is “binding upon the court” unless it finds that the agreement is “unconscionable”. (See 750 ILCS 5/502(a)). If the terms of the Marital Settlement Agreement describing the property being affected differ from the actual underlying deeds, then you have created an ambiguity which could prove to be a real problem if there is a post dissolution dispute. Therefore, it is incumbent upon the drafter to physically examine the underlying deeds.
Some divorce attorneys take their client’s word when they say how their property is titled. The mistitling of property in a Marital Settlement Agreement can have profound effects on the disposition of property should there be a dispute down the road. Most laymen do not know the difference between a joint tenancy deed and a tenancy by the entirety deed and will likely misdescribe their deed when asked.
A mistake I have seen is where the parties wanted to “keep their property in joint tenancy,” and that is the way the divorce attorney drafted the marital settlement agreement. After the divorce, when the former husband died, the former wife claimed full ownership over the property because she thought the property was held in joint tenancy. However, it was then found that the property was actually titled as tenants by the entirety. A dispute subsequently ensued between the former wife and the former husband’s estate. The estate claimed that under Illinois law, the effect of a divorce in Illinois is to convert a tenancy by the entirety deed to a tenancy in common and that the estate, therefore, owned a 50% interest in the property.
Specifically, the relevant law is as follows:
“...the estate in tenancy by the entirety so created shall exist only if, and as long as, the tenants are and remain married to each other, and upon the death of either such tenant the survivor shall retain the entire estate; provided that, upon a judgment of dissolution of marriage or of declaration of invalidity of marriage, the estate shall, by operation of law, become a tenancy in common until and unless the court directs otherwise...”
(See 765 ILCS 1005/1c).
By failing to check the actual deeds before drafting the Marital Settlement Agreement, the divorce attorney created ambiguity and practically invited post-dissolution litigation.
There is case law on this particular issue. In general, the terms of the Marital Settlement Agreement will control over the wording of the deed. Accordingly, “the property settlement agreement defined the nature and extent of the rights and liabilities of the parties with respect to the marital real estate….” Coleman’s Estate, Matter of, 395 N.E.2d 1209, 1211 (Ill.App. 2 Dist. 1979). (In Coleman, the court severed a joint tenancy deed due to the terms of the divorce decree and the conduct of the parties).
If you are drafting a Marital Settlement Agreement, try to avoid clauses which require the parties sell property and split the proceeds after the divorce is finalized. This is a recipe for trouble. Even if the parties get along, one of them may die and then you have to contend with an estate of potentially uncooperative heirs. It is far better to settle all property matters while the proceedings are pending. Try to creatively address these issues by refinancing and paying off one spouse, or by crediting one spouse based on an agreed value.
The idea of a divorce is to separate the parties. Continued interest in owning property together after a divorce does not constitute a separation. Creating obligations to “sell the property” can generate problems if the parties subsequently decide not to sell.
In the case of Marriage of Dudek, 559 N.E.2d 1078 (2nd Dist. 1990), the settlement agreement provided that the marital residence, which the parties held in joint tenancy, would remain in joint tenancy. The property settlement agreement also provided that, upon the agreement of the parties, the marital residence could be sold. The spouse (former wife) then died and her estate sued to force the sale of the property. The court determined that, “the parties here clearly demonstrated their intent that the property remain in joint tenancy following the dissolution. Sophie never took any action contrary to that intent.” Id at 1080. That is, since the wife never took any action to sell the property during her lifetime, the joint tenancy provisions controlled and the surviving husband received full right, title and interest in and to the property. Thus, the provision in the Marital Settlement Agreement that the property could be sold really didn’t accomplish much other than inviting a lawsuit by the decedent’s estate. In order to avoid such litigation, it is advised, where possible, that the divorcing parties avoid co-ownership of property following the divorce.
In the case of Marriage of Dowty, 496 N.E.2d 1252, 146 Ill.App.3d 675, 100 Ill.Dec. 187 (Ill.App. 2 Dist. 1986) the court was faced with a situation where the terms of the Marital Settlement Agreement conflicted with the joint tenancy nature of the deed. In this case, “the property settlement agreement of the parties, as supplemented by their oral agreement at the dissolution hearing, clearly demonstrates their intent to sell it as soon as possible. The property was, indeed, then on the market, and was only withdrawn from sale by the husband at the untimely death of the wife. The other terms of their agreement depended for execution, in large part, upon the sale of the property; that was one condition for cessation of maintenance by the husband and also for distribution between the parties of their interests in the home, the wife’s share of the retirement trust funds and payment of her attorney’s fees.” (emphasis added) This case exemplifies the problems that can be created when the Marital Settlement Agreement leaves issues to be resolved post-dissolution.
Refinance and Get Your Ex Off The Mortgage
In addition, if you are the spouse that will be receiving the property, you also should refinance so that you can pay off the old mortgage and thereby obtain a new mortgage with only your name on it. You may be tempted to keep the old mortgage and just keep making payments thinking that your name is on the deed and that is all that matters. You are wrong.
Having a non-owning ex-spouse on the mortgage can create many problems. First, if your Ex goes bankrupt, you might not be able to sell your property until you or your lender file a motion in bankruptcy court to have the bankruptcy stay lifted with regard to the property. Once your lender finds out that your Ex has filed bankruptcy, they will not do anything until the stay has been lifted, even if your Ex is not on the deed. Just having your Ex on the mortgage will raise red flags for the lender and the bankruptcy trustee who will want to confirm that the estate has no claim to the actual property.
Second, if you have to undertake a short sale, your lender may require that your Ex (whose name is still on the mortgage) sign certain documents relating to the short sale or prove that their assets should not be considered for purposes of the short sale approval process.
Third, if you sell the property, your title company (or the buyer’s attorney) might possibly demand that your Ex sign a document waiving any potential homestead rights. Or, at a minimum, you will have to present your divorce papers to the title company and possibly to the buyer’s attorney proving that your Ex has no remaining homestead rights. Why bother going through this exercise when the matter can be better handled during the divorce itself?
I can tell you from first-hand experience that I have handled real estate transactions where each of the above issues presented themselves. In each case, many expensive and time-consuming problems could have been avoided had proper titling and re-mortgaging been handled during the divorce.
I understand that re-mortgaging might not always be a realistic option for a variety of reasons from a financial perspective. However, it would have helped to at least have a certified document signed by the Ex-Spouse waiving homestead rights and granting the owning spouse full power of attorney to dispose of the property and the mortgage. Perhaps such an agreement would also contain a provision promising to cooperate with any future need for signatures and perhaps an enforcement provision granting attorney fees if the owning spouse is forced to go back to court to compel the non-owning spouse to cooperate.
For the non-owning spouse
Get Your Name Off The Deed
As a non-owning spouse you do not want your name to continue on the deed. This may seem counterintuitive at first. You may think what’s wrong with continuing to own something that was not awarded to me? The answer is “plenty.”
First, regardless of what the Marital Settlement Agreement says, if your name is on the deed, then from the perspective of the rest of the world, you are still the owner. That means, if a property tax bill is due, you are liable for it. If someone slips and falls on the property, you can be sued. If a gas or water bill needs to be paid, get out your checkbook. If your Ex stops making mortgage payments and a foreclosure case is commenced, you will be named as a party.
Get Your Name Off The Note and Mortgage
You may think that once your name is off the deed, you are safe from danger associated with continued ownership of the property. However, if your name remains on the note and mortgage, you are still exposed to many risks.
First, as with the deed, if your name is still on the note and/or mortgage after the divorce, and there is a subsequent foreclosure case, you will be named as a party. Remember, if your name is still on the note and mortgage, then you are still liable for the debt. The bank will not care that you got divorced. They are not a party to, and therefore not affected by, the Marital Settlement Agreement. Also, your old note and mortgage with your Ex may affect your credit and your ability to obtain a new mortgage on different property. If your Ex fails to make timely payments on the marital mortgage, it will affect your credit score. Finally, you will very likely be bothered for a signature down the road if your Ex does pretty much anything with the property other than continue to make payments.
As illustrated above, it is in the interests of both spouses to properly finalize property issues while the divorce proceeding is still pending. That is when both parties are most incentivized to get property related matters resolved so they can move on with their lives. Avoid clauses in Marital Settlement Agreements that keep the parties bound to one another through joint property ownership after the divorce. In any divorce setting, a clean separation is a better result, indeed.