If you find yourself contemplating a divorce or currently entrenched in the divorce process, you may be wondering what happens when it comes time for the property transfer. After all, that property comes with a significant contract and a hefty price tag, not to mention the tax implications. So, what is the best way to remove the former spouse’s name from the deed? And when should it be completed? No matter which party is keeping the property, these questions and more should be something you discuss with your divorce attorney as soon as possible.
Tax Implications
As a general rule, if the transfer of property is part of a divorce decree, the IRS looks at it as a non-taxable event. However, if the transfer of property was in a pre-nuptial agreement, it is a good idea to also include it in the divorce decree just to ensure that the transfer remains non-taxable. This is something that you can speak with your attorney about, and they will help you to have this included in the decree. There is also an assumption that property transfers that occur within one year of a divorce are related to the divorce and are therefore non-taxable.
There are certain circumstances where a transfer of property outside of one year after the divorce, but not more than 6 years after, can be considered part of the divorce settlement. In addition, a transfer of property to a third party can sometimes be considered part of the divorce and can therefore be considered non-taxable events. Speak with your attorney to determine what the best course of action is in your specific situation.
Deed Transfers and Liability
In the event of a divorce, one party can keep the marital home. This means that the other party will need to be removed from the deed. One option for doing so is through a quitclaim deed. This quitclaim allows one spouse to remove their name from the deed to the property. However, this may not be the best option for everyone. Using a quitclaim may remove the name from the deed but not from the liability for the mortgage.
If both spouses names were on a joint mortgage, then both remain liable regardless of who is on the deed or not. This means that if your ex keeps the house and fails to pay the mortgage, any financial responsibility or foreclosure falls on you as well. In this instance, the best approach may be to have both spouses fill out a quitclaim deed on the property at the same time. Then the party who is maintaining ownership of the property must acquire a new mortgage on the house solely in their name.
In Conclusion
No matter what happens, your best option is to speak with your attorney to ensure that you have fully discussed your rights, your options, and the best course of action for your unique circumstances. The transfer of property, whether in a divorce or not, can be an involved process that takes time, so be sure to weigh your options early in order to make the transfer as seamless as possible.