We’re excited to present the latest in our series on the Melrose Title Company blog “Ask An Attorney.” This is a way for us to answer some of the more commonly asked questions and provide clarity and understanding for consumers. In this edition of “Ask An Attorney,” our own attorney Jessee Bundy addresses how divorce affects real property.
Who gets the Jeep? Who gets the palace? More importantly, how can you be sure the palace gets properly conveyed to your client? Nothing about divorce is easy, and when it comes to real estate owned by parties who are divorcing, there are no simple answers. Should one spouse keep the primary residence, or should it be sold so the profits can be divided according to an agreed-upon formula? Who should determine how much the real estate is worth? Even once that is settled, what should happen to vacation homes and investment property?
Below are answers to some common questions about title and ownership that arise when handling Tennessee real property owned by parties involved a divorce. These provide helpful guidance and illustrate many of the factors to consider in this type of situation. However, always consult with an experienced real estate attorney and title team if you have questions with respect to your closing and conveyance of the property.
Who decides how real property is divided in a divorce?
If a couple can agree on how to divide up their property, they are allowed to make these decisions. In this situation, the agreement will be documented in what is called a Marital Dissolution Agreement. It is often attached to and incorporated by reference into the Final Decree, which is the order that finalizes the divorce. If spouses are unable to agree, they must go to court and present evidence to a judge who will order an equitable distribution of their property.
What factors does a court consider in reaching an equitable distribution?
First, it must be noted that equitable does NOT mean equal. Equitable means fair, just, and reasonable, based on factors set out by Tennessee Code Annotated § 36-5-121. Both parties present evidence with respect to these factors, then a judge decides upon a fair distribution of the property.
In deciding how to divide the property, a judge will look at:
- the duration of the marriage
- the age, physical and mental health, vocational skills, employability, earning capacity, estate, financial liabilities, and financial needs of each spouse
- the tangible or intangible contribution by one spouse to the education, training, or increased earning power of the other
- the relative ability of each party for future acquisitions of capital assets and income
- the contribution each spouse has made to the acquisition, preservation, appreciation, or dissipation of the marital or separate property, including the contribution of a spouse to the marriage as homemaker, wage earner, or parent, with the contribution of a homemaker and wage earner to be given the same weight if each spouse has fulfilled his or her role
- the value of each spouse’s separate property
- the estate of each spouse at the time of the marriage
- the economic circumstances of each spouse at the time the division of property is to become effective
- the tax consequences to each spouse
- the amount of Social Security benefits available to each spouse, and
- such other factors as are necessary to consider the equities between the parties
What is “marital property”?
Marital property refers to property that belongs to the marriage, as opposed to separate property, which is separately owned by one spouse or the other. Marital property includes all real and personal property, whether tangible or intangible, acquired by either or both spouses during the course of the marriage. (Tangible property is property that can be physically touched, such as a car or home; intangible property includes intellectual property, goodwill in a business, and similar types of assets.)
Marital property also includes income from, and any increase in value of, separate property if each spouse substantially contributed to its preservation and appreciation. “Substantial contribution” may include, but is not limited to, the direct or indirect contribution of a spouse as homemaker, wage earner, parent, or family financial manager, together with such other factors as the court may decide to consider.
Marital property also includes the value of vested pension, retirement, or other fringe benefit rights accrued during the period of the marriage.
What is considered “non-marital property”?
Tennessee calls this separate property. “Separate property” includes:
- all real and personal property owned by one spouse before marriage
- property acquired by a spouse in exchange for property acquired before the marriage
- income from and appreciation of property owned by a spouse before marriage, except when characterized as marital property by means of another legal theory (ask your attorney how this works)
- pain and suffering awards, victim of crime compensation awards, and awards for future medical expenses and future lost wages
- property acquired by a spouse at any time by gift, bequest, devise, or descent (which can include gifts from one spouse to another, such as jewelry or a car), and
- property a spouse acquires after an order of legal separation where the court has made a final disposition of the property.
If the spouses have combined their separate and marital property, how does the court decide on property division?
Spouses often commingle their marital and non-marital property. If separate property becomes commingled, it may lose its separate status and become marital property. This can cause difficult issues for the court. If property can be traced easily to its original separate source, the court is more likely to award it to the original spouse. If it cannot be easily traced, the court is less likely to award it as separate property. Even if a court finds the property was once separate but became marital property, the court will consider other property as part of the equation and look to make an equitable distribution.
When a divorce action is filed, are there restrictions on what a spouse can do with marital or separate property?
An automatic or statutory injunction is a required part of a divorce complaint in Tennessee (T.C.A. § 36-4-106). It protects marital property and finances, preserves evidence, and safeguards either party and any children involved. When a divorce is filed, an automatic injunction goes into effect that prohibits either party from taking any actions sell, convey, or otherwise dispose of any marital property without agreement of the parties or Order of the Court.
A statutory injunction protects each of the parties from any potential misdeeds on the part of their revenge-seeking spouse. Any violation of the injunction could result in being held in contempt of court, or even going to jail. The judge can also order one party to pay the attorney fees for their spouse’s attorney. Once the divorce has been settled this injunction will be lifted.
How does the court determine the value of the real property at issue?
The most common way to for a court to determine fair market value is to have a professional real estate appraiser come and look at the property. Recent sales of comparable properties, in conjunction with any special features of the subject property, are used to determine a number that represents the appraiser’s best assessment of fair market value for the property. Where there is a substantial difference between each side’s appraisal of a property, a judge may require that a third independent appraisal be conducted.
What happens to real property a spouse has acquired by inheritance during the marriage ?
Property from inheritance is separate property, which means it belongs only to the inheriting spouse. However, the inheriting spouse must take care not to treat it as marital property owned by both spouses. Any improvements or investments made to the property should be made by the inheriting spouse only, using money from a separate bank account. Any money received from rents, leases, etc. should be put in a separate bank account and not commingled with joint funds of the couple. If the inheriting spouse is not careful to protect his or her rights, the non-inheriting spouse may assert an interest in the property and it may be considered martial property subject to division in a divorce.
Will a quitclaim deed release an ex-spouse from their mortgage obligation?
This is a common error that divorcing couples often make when dividing their property. A quitclaim deed only affects how the property is titled and has no impact on the loan obligation. Both parties are still responsible for the financial obligations on all joint debts, regardless of how their marital property was divided in the divorce, unless the loan is modified or refinanced. However, many attorneys will include an indemnity clause in the marital dissolution agreement protecting their client from their former spouse’s assigned debts and obligations.
How and when should an ex-spouse’s name be removed the house deed and mortgage?
An ex-spouse’s name can be removed from title via quitclaim deed in which one party conveys all of their right, title, and interest to the other party. A mortgage can be modified or refinanced to release an ex-spouse from any obligations and shift these to the remaining spouse in full. However, this should not be done until after the final divorce decree is entered with the court. Until the marriage is officially dissolved, both parties have a marital interest in the property and must join in any conveyance or encumbrance of the property. After the final hearing, there is a 30-day appeal period. Title to the property should not be conveyed to a subsequent purchaser until the expiration of this 30-day period.
Is an ex-spouse who is no longer on title entitled to any profits from the sale of the property?
No. Unless the marital dissolution agreement or judge states otherwise, title to the property is fully and solely vested in the spouse who is given ownership in divorce. Following a final decree of divorce and valid quitclaim deed, the spouse remaining on title can do anything he or she wants with the proceeds of a sale.
Why is a quitclaim deed required if the parties are separated and everything is in the seller’s name?
Even if an ex-spouse is not on title, he or she may have a legal right to claim a martial interest in the house. Separation does not extinguish this interest. A quitclaim deed is necessary to resolve this issue and ensure the property has clear title before selling. Most lawyers and title companies will not to close without it, due to the risk an unaddressed spousal interest can present.
Which party pays for the quitclaim deed?
It depends on what has been negotiated between the parties, but generally the party filing the deed is responsible for the preparation and filing fees.
What if an ex-spouse refuses to sign the quitclaim deed?
If the final decree contains language awarding full ownership in the property to one party and divesting the other party of any interest, it is possible that the signed order is sufficient enough to act as a deed and change the title if it is recorded with the Register of Deeds. If a quitclaim deed is required and an ex-spouse refuses to sign it, the court could then hold him or her in contempt of a court order and he or she could face the possibility of having to serve jail time.
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