So many folks who I work with on real property (land) matters have at least some confusion about how property ownership generally works, especially between spouses. Here are some of the issues I see the most often and a basic explanation of the law related to each instance:
1) If you are married and you own property your spouse must sign off on matters related to the property. This is true even if you owned the property prior to your marriage and even if you were deeded or otherwise transferred property without your spouse being listed as an owner. Title standards don’t care how you became owner of the property, it simply matters that you are married. If you are married, your spouse needs to sign off on any transfer–This means deeds, mortgages (mortgage refinances), releases, easements and pretty much anything else that is going to be recorded in the property records office. Each of these types of documents also needs to include the marital status of the grantor/mortgagor.
Note: This says and means nothing about the marital or non-marital value of you or your spouse’s interest in the property.
2) Joint Tenancy is assumed between spouses. There are two primary types of joint property ownership, joint tenancy and tenancy in common. If someone owns property with another person in joint tenancy and one party passes away, the deceased party’s interest in the property is extinguished and does not pass on to his or her heirs. For property held as tenants in common, the interest of each tenant carries on to their respective heirs upon death. For spouses, unless a deed states otherwise, joint tenancy is created. For all non-married parties a tenancy in common is assumed unless it is stated otherwise in the deed.
Note: Holding property in joint tenancy is an important tool in estate planning. If property is held in joint tenancy, it is not considered a probate asset, because the interest is extinguished upon death.
3) If you divorce and real property is awarded to your spouse, make sure you consider the note underlying any mortgage. This gets confusing, but bear with me. When you “get a mortgage”, you are really taking out a loan that is 1) evidenced by a promissory note and 2) secured by a mortgage. The note is your promise to repay the money lent. The mortgage is the pledge of your real property in exchange for your promise to timely repay the note and follow the other terms of the note and mortgage. If you fail to do so, your mortgage may be foreclosed allowing the bank to effectively “repossess” your property.
When your marriage is dissolved it is important to consider the implications of the notes underlying secured debt. (This not only applies to mortgages, but also to other secured debt like vehicle loans.) If you and your spouse received joint financing you signed not only a mortgage, but the promise to repay (the note). These are two separate obligations. Your obligation to repay the note is not extinguished by you transferring your interest in the property.
Without careful consideration of the consequences, I would not recommend you agree* to allow your spouse to be awarded the property without also requiring him or her to also refinance. This is true even if the decree states the spouse is obligated to make payments on the note. Here’s why: 1) if your spouse fails to pay the note it could and will likely harm your credit, 2) the debt will continue to be listed as one of your liabilities will effect your debt to equity ratio and 3) in some situations (see my article on Buying Foreclosed Property for more), if your spouse fails to repay, a bank may choose not to simply foreclose if the note is not timely repaid, but also go after YOU for a deficiency.
*Note: In the above paragraph, I state you should not “agree” to allow your spouse to be awarded the property without also requiring a refinance. This issue applies in property settlements. Rarely would a judge award property to one party as a part of a trial order without also clearing the underlying debt obligation.