Interspousal Transfer Deed: A Basic Overview

Part of going through a divorce is, of course, the division of property. You and your spouse will likely spend hours, if not days, deciding who will take what. Some objects are easy to account for, like small possessions and items like clothing and DVDs. But as the size and importance of the items in question grow, greater steps may need to be taken to ensure a fair division of property.

Terms Used

It is first important to understand some basic terminology and a legal standpoint regarding property when it comes to divorce. The following provide some terms that you and your legal counsel will likely discuss as your divorce is processed.

• Community property is a term that includes all the earnings during the course of your marriage, and all that you have acquired as part of those earnings. All the debts that are incurred during the marriage are considered community property debt.
• Separate property of just one spouse includes things like personal injury awards, inheritances, and gifts that are received by that spouse. They also include pension payouts that the pensioner became eligible to receive before the marriage. Any property purchased with separate funds of one spouse will remain as that spouse’s separate property.
• A business owned by one spouse before the marriage will stay as his or her own separate property while the marriage is in effect. However, the business may become community property if the value of the business increased while the marriage was in effect, or if both spouses worked there.
• If commingling of separate and community property takes place during the marriage, it runs the risk of becoming community property wholly or in part. It all depends upon the circumstances at hand.
• Property bought with a combination of community and separate funds is considered part community and part separate property – as long as a spouse is able to show that separate funds were used in the purchase. The mixing of separate property and community property will generally become community property.

When it comes to real property, there will certainly be some back and forth about how to go about dividing up this part of your life. Your home especially may be a point of contention. 

When you do decide who gets the home, you will need a deed. 

A deed is a written legal document that transfers property from one entity or person to another. Using a deed, one spouse is able to give his or her property away to the other person. That property then becomes the receiving spouse’s separate property.

You can use two documents to accomplish this transfer of property: a quit claim deed or an interspousal transfer deed. This article will discuss the difference between the two, as well as the advantages and disadvantages of their use.

Interspousal Transfer Deed vs. Quit Claim Deed: A Definition

An interspousal transfer deed will transfer the title (or ownership) between a married couple. If there was a gift given by one spouse to the other during the course of the marriage, this is considered separate (or owned separately) and not marital or mutually-owned property.

This is critical to remember, as it is through the use of a deed that marital property can become separate property, or separate property can become marital property. Perhaps the best use of an interspousal transfer deed is when one spouse has less than sterling credit, and the couple desires to refinance their home.

As a means of getting a better interest rate on the mortgage, a married couple might use an interspousal transfer deed to transfer the title of the property to the spouse that has the better credit score. One may also see it used in situations like the following:

• A divorcing couple wishes to transfer title to property as a consequence of a divorce settlement
• One spouse’s name must be removed from the title due to legal or financial reasons
• One spouse desires to add the other spouse to a separate property’s title

A quit claim deed will enact the transfer of interest that one spouse has in a property to the other spouse. The main difference between this document and the interspousal transfer deed is that the quit claim deed will not come with any promises or guarantees about the ownership of the property at stake. Times when couples may wish to use a quit claim deed might be:

• Giving up the interest in a property
• Transferring title to property as a consequence of a divorce settlement

When to Use a Quit Claim Deed, and When to Use an Interspousal Transfer Deed

Tax liability can be avoided when completing a transfer of property by using an interspousal transfer deed. When title to a property is transferred, the county in which the property is located may charge a transfer tax and re-evaluate the value of the property, which may result in a higher property tax cost. Using an interspousal transfer deed is a special transfer that exempts the bearer from transfer taxes and provides a cost-effective way to transfer properties between spouses.

Quit claim deeds are very easy to find and use. One can find them at nearly any office supply shop, or even on the Internet. It is important to remember that with a quit claim deed, one spouse may give up their rights to a property – but NOT necessarily the liability involved for any mortgage or lien that still remains on the property in question.

There may be problems that come up if one spouse gets the marital home as a result of divorce, and the other spouse uses a quit claim form instead of the interspousal transfer deed to transfer his or her interest in the property.

Even if that spouse relinquishes or gives up their interest to the house, they might still end up being responsible for half of the mortgage debt because their liability cannot be transferred by way of a quit claim deed.

Going Deeper: Quit Claim Deeds

Quit claim deeds are used each and every day in the real estate business. Do not fall into the trap like so many others do in believing that this is the correct way to transfer ownership or title of a property.

Bear in mind that a quit claim deed will transfer the title or ownership of a property with absolutely no warranty. You get the title strictly “as is.” It comes with no guarantees, as previously mentioned.

By signing a quit claim deed, you are quitting or giving up your ownership claim to the property at hand and letting the other individual on the title – most likely your spouse – own the title solely in their name. It is important to understand that you certainly will no longer be an owner on this property (unless the other party decides to add you back onto the title later on).

This process is simple and relatively fast. Many people are capable of doing this all on their own. You can find the form online or at an office store. Simply get the form, fill it out with the owner’s name and property information, and be sure to sign it. Then, bring the form to a member of the notary public and record it at the county courthouse.

After that, the process will be complete. Keep in mind that even if you do not record the deed with the correct county personnel, the individual who holds the document can use it to render your claim invalid – during a divorce, for example. You may wish to consult an attorney for best results.

Consulting legal counsel is advised because while the process is rather easy to do, people may simply not understand all that goes into using this particular deed. Problems may arise. It is common among uninformed divorcees to mistakenly use this deed as a way of conveying the title of their home or ownership to the other spouse. This is where an Interspousal Transfer deed should actually be used.

Consider the Following: Imagine there is a couple who jointly own their home. Divorce takes place, and the judge decides to award the home to the wife. The husband responds by using a quit-claim form to give 100% ownership to his ex-wife. Now, the ex-wife owns the home completely. She certainly owns the entire property, but is only liable for half of the mortgage payment. 

A Family Law judge will likely assign responsibility for the mortgage and taxes to whomever wins the property, but the judge cannot order the mortgage company to assign the debt to one single party or the other; they are not a party to the divorce action.

In this manner, a buyout may be the best course of action; you might consider refinancing and then buying out the interest of the ex-spouse. By doing this, the person that owns 100% of the house is responsible for all of the debt, too. As always, consult your legal counsel for the best and most sound advice.

Another point of concern for the use of a quit-claim deed is that all judgments and liens that are attached to the property go along with the transfer. The property is transferred just as it is. A title search is recommended before taking the title of a property through the use of a quit claim deed. One may find that the property in question is more trouble than it is worth. As always, consult an attorney.

Separate Property and Interspousal Transfer Deeds

There are some special situations in which an interspousal transfer deed may be the ideal solution for you and your spouse. Below are a few examples if separate property is part of your settlement.

• Separate Finances – If you and your spouse usually paid close attention to how your property is titled, it is likely you and your spouse will find use in an interspousal transfer deed.
• Marital Issues or Problems – Spouses may bargain with property so as to not use certain actions as grounds for divorce.

Likewise, there are situations that do not favor the use of an interspousal transfer deed for separate property. For example:

Estate Planning – If one spouse is not able to hold legal title, there will likely be no contractual transfer. Also, if the transaction is a violation of public policy, there may be no contract. In one case, a husband convinced his wife to give him over $100,000 worth of property for only ten dollars – clearly not a textbook practice for property management.

Unenforceable Contract – If a contract is deemed fraudulent, composed under duress, unduly influenced, or otherwise without regard to the conscionability of one or both parties, it will not hold.

Preparing Your Deed

Whichever deed you do use, the steps are similar in nature. Below are the basic steps one might take.

1. Make sure the deed is in writing.
2. Make sure to list spouses involved in the transfer.
3. Identify the property to be transferred.
4. Have your form notarized.
5. Record the deed in your property’s county office.

Time Limits

If you are married, there is no time limit on interspousal property transfers.

Property can be transferred at any time. At the federal level, there will be no recognition of taxable gain by the IRS if transfer is between spouses. The exception for divorce is that the property must be transferred within one year after divorcing.

For the state and local levels, taxes are also collected from the sale of real estate – but they may not be collected if the transfer is between spouses. Check local and state regulations for your state’s handling.

Conclusion

The transfer of property is a big point of concern for many divorcing couples, but the right knowledge of legal matters and technique can make it much easier. Each document is beneficial in its own way, for varying situations. Consider each of these two documents and decide with your attorney which one will benefit you and your own situation.