By Nathan A. Hacker
Learn from these examples to ensure you do not make a similar divorce mistake when dealing with your home in a divorce.
Fred and Wilma are getting a divorce. Wilma hires a divorce lawyer, and Fred, in order to save money, does some research online to get familiar with the process. They reach this marital home agreement:
Fred shall execute a quitclaim deed on the marital residence commonly known as 301 Cobblestone Way, Bedrock. Wilma shall have as her own the marital residence commonly known as 310 Cobblestone Way, Bedrock. Wilma shall be responsible for all mortgages, debts, liabilities, taxes, and fees associated with ownership.
So what’s wrong in that example?
First, Fred has quitclaimed the house without anything in return other than Wilma agreeing to be responsible for the debts and liabilities. What happens when the mortgage collector comes knocking on Fred’s door because Wilma hasn’t paid in months? Fred is on the hook and now he has to join Wilma to get reimbursed for her not holding up her end of the bargain. How much to do you think Fred is going to get from Wilma if she isn’t paying the mortgage?
Let’s assume for the sake of argument that Wilma has remarried. Her husband, Mr. Slate, owns a large stone quarry and has made tons of money. She moves in with him.
Now his assets are hers and Fred is instituting a claim for reimbursement because Wilma didn’t uphold her end of the contract. Now Wilma and Mr. Slate’s property may be subject to curing Fred’s loss of credit, attorney’s fees, and the debts he was forced to pay.
In either case the attorney has not done either party that many favors. Had Fred simply had an attorney look over the agreement ahead of time, Fred would have realized what he was getting into and that attorney could have helped him include a refinance clause.
George is a hard-working man at the local gear factory. His wife, Jane, stays home with the kids and manages household affairs. They have a comfortable life until Jane starts to get bored and leaves George for Spencer.
The parties come to a divorce agreement, but in an effort to save money George declines to have the house appraised. Instead, George goes with what his realtor buddy put together on what he would try to sell the house for in the current economy.
Jane finds out about this and gets it through the discovery process. The realtor said that he would try to sell the house for what the couple had paid for it 8 years ago during the housing boom. This means, by George’s calculation, he has about $75,000 in equity.
George decides to ignore his attorney’s advice and get an appraisal done. The parties agree to a division of assets and George, who is keeping the marital home, agrees to offset the equity in his home with a sizeable disbursement from his retirement.
George, as he is required to do by his divorce decree, begins the refinance process and the first thing the bank does is order an appraisal. It turns out that his house is upside down by what he agreed to split out of his retirement.
Never mind the cartoon names and scenarios; this really happens. Had George spent the $500 for an appraisal he would have had the basis to argue the actual value of the house was not what they paid for it, but much less.
It would have saved him tens of thousands and given him a good negotiating tool. If he didn’t assume that debt, it would have been split along with his retirement. If he chooses to assume the debt he may have also been able to prevent the shares from leaving his retirement account.
The lesson here is two-fold: debt can be an asset in negotiations, and thinking you own something when you don’t is worse than not knowing what you own.
Hopefully you learned from the mistakes of a couple of situations. If you have questions, ask a divorce lawyer in your area. Lawyers can be expensive, but not having an attorney will cost you more in the long run.