Couples who get divorced need to carefully consider the effect their divorce will have on real estate they acquired together while married.
Husbands and wives usually title their home, and perhaps other real property, as tenants by the entireties. This form of tenancy means the husband and wife own the property together. One spouse cannot sell or mortgage any interest in the property without the other signing the contract, deed or mortgage. A judgment or tax lien against only one spouse does not constitute a lien on real property owned as tenants by the entireties.
Only spouses can own property as tenants by the entireties. Once there is a divorce the parties are legally considered to own the real property as tenants in common. This tenancy means that each ex-spouse owns a one-half interest in the property. A property interest owned as tenant in common can be sold or mortgaged without the consent of the other tenant(s) in common. A judgment or tax lien against a party owning property as tenant in common is a lien against that party's interest in the property.
Because divorce affects the way real property is titled, careful planning may avoid undesirable results. Let's say husband and wife own a house worth $150,000. Creditor of husband holds a judgment against husband for $10,000. While husband and wife are married and own the home as tenants by the entireties, Creditor cannot enforce the judgment by attaching and selling the parties' house. If husband and wife divorce, Creditor's $10,000 judgment automatically becomes a lien on husband's one-half interest as tenant in common. Creditor can enforce its judgment by attaching and selling husband's one-half interest.
In the example cited, husband and wife could avoid a lien against the home by transferring it to wife before their divorce, as part of a property settlement. That way, the $10,000 judgment will never be a lien on the house.
For questions related to property or tax issues involved in a divorce, please contact Susan Terlep. |
