The Effect Of Divorce On Real Property Title

What Happens to Our Property When We Divorce?

How Married Couples Hold Title

For many married couples one of their biggest financial investments and assets is their home or “primary residence.” When purchasing property, most husbands and wives take title as Tenants by the Entirety with the common law right of survivorship (“T by E”). Along with other benefits, this type of tenancy offers protection of the property title against the claims of creditors of one spouse. In other words, when one spouse finds him/herself in financial difficulties holding title as T by E prevents a creditor from attaching a judgment to the property and clouding the title, pursuant to Virginia property law and Virginia divorce law.

How Divorce Changes Title

During a divorce, under Virginia divorce law, §20-107.3 property is divided up between the spouses, but title to the primary residence may remain in the names of both spouses even after the divorce is final. There are many reasons divorcing couples may not want to sell their primary residence or deed the property over to just one spouse. One spouse may want to continue living there to raise the kids in their familiar environment, but may not be able to buy out the other spouse at that time; or, it may not be the right time to put the house up for sale because the real estate market is down. It may be the most affordable place for one spouse to live, given the increase in rents and home prices, but both spouses want to stay on the deed.

It is important when you are facing divorce to know that even though you are not selling your property or transferring title, your tenancy status will change automatically upon entry of the final divorce decree. Only married couples may hold title as T by E. Upon divorce, the former spouses will automatically hold title as Tenants in Common. In this type of tenancy each spouse will hold a one-half undivided share of the title, under Virginia law.

Effects of the Change in Tenancy

Financially speaking, once the property is held as Tenants in Common, it is subject to creditors of one spouse attaching a judgment lien on the property. Thus, if one spouse has a judgment against him/her, the judgment creditor may place a lien on the real property that will affect the title. The property is no longer protected against the attachment of a lien as it was when title was held by the married couple as Tenants by the Entirety. The judgment will need to be paid off before the property can be sold, which negatively affects the marketability of the property.

Here’s a short example illustrating the changes in tenancy that will occur with divorce:

Mr. and Mrs. Johnson own a primary residence with a mortgage of $525,000.00. Unfortunately, with a down market, the house is valued at only $500,000.00. Mr. and Mrs. Johnson hold title to the house T by E. Mr. Johnson goes into debt due to his business, and the judgment creditor obtains a $100,000.00 judgment against Mr. Johnson and his business. The creditor dockets the judgment against their primary residence, since Mr. Johnson is a record owner. However, since the lien is only against Mr. Johnson, and not also Mrs. Johnson, and they hold title as T by E, their primary residence is not affected by the lien. If they wanted to sell the house the judgment would not cloud the title and the sale would go through without having to pay the judgment lien of $100,000.00.

Now consider what would happen if Mr. and Mrs. Johnson decided to divorce. They probably would not sell the property and pay off the mortgage due to the deflated value of the house. Neither spouse would want to take sole title to the property and become responsible for the mortgage. If the divorce became final while they continue to jointly own the property they would no longer hold title T by E. Upon divorce they would automatically hold title as Tenants in Common. Holding title as such, the primary residence is no longer “immune” to the judgment lien against Mr. Johnson. The lien attaches to the property and will have to be paid before the property may be sold. Thus the $500,000.00 home will have to have both a $525,000.00 mortgage AND the $100,000.00 judgment lien paid off before title is transferred to a purchaser.

If you are currently facing divorce and own property jointly with your spouse it is important to talk with an experienced attorney who can advise you on protecting the value of your home. Contact Keithley Law, PLLC, PLLC today.