Tips on real estate title and debt in divorce proceedings

Over my years of practice, I have seen countless (and needless) debt and real estate title problems arising from divorce proceedings, some arising many years after the divorce decree goes on. In this blog entry, I address several of these.

For anyone going through a divorce, or who has already been through a divorce, I’d recommend “checking all the boxes” in this blog entry to avoid costly problems arising from a divorce. (Just because your divorce was years ago does not mean some of these problems won’t still raise their ugly head.)

  • First, on Day #1, cancel all joint credit cards and terminate all joint lines of credit. Time and time again, I have seen one spouse run up credit card charges on joint accounts, and run up lines of credit — maybe secured by a lien on the house — to the max either as the divorce is proceeding or after the divorce. Worse, they have spent it on jewelry, trips, cars, flowers and candy for the new girlfriend (classy!). On Day #1, and I mean Day #1, stop the soon-to-be ex-spouse’s access to joint credit.  Otherwise, when they go bankrupt or insolvent, you may be left holding the bag.
  • Terminate all accounts on which you are liable: The one that is most common is a cell phone account. But it might be a utility service (water, sewer, gas, electric), a joint account at a retailer, a business line of credit, etc. Close those accounts or take your name off of them. Do it in writing. Do it promptly as the divorce proceeds.
  • A common resolution of the division of the home (or other property) jointly owned by the divorcing husband and wife is that the divorce court orders one spouse to convey their 1/2 interest in such house or property to the other party. And associated with that that, the grantee then is ordered to refinance the mortgage on the house so that the grantor is released from the debt associated with the the-existing joint mortgage. That is fine as far as it goes, but countless times I have seen one or the other spouse not follow through on that. Here are some problems I have seen with this:
    • The ex-spouse who is supposed to grant the real property delays interminably and fails to do so. The grantee ex-spouse ignores the failure, sometimes for years. This is a huge mistake. Get that deed.
    • The grantee ex-spouse gets a deed, but tucks it into her dresser drawer and forgets about it. You have to record that deed immediately, otherwise intervening liens and bankruptcy of the grantor ex-spouse filings take priority! In the case I recall, the grantor spouse filed bankruptcy years later, and that 1/2 interest in the house went to the ex-spouse’s creditors rather than to the grantee. The problem was not fixable.
    • The grantee ex-wife was the signer on a line of credit for the grantor ex-husband’s business. That line of credit was secured with a lien on their marital residence that was ordered by the Court to be granted to the ex-wife. The ex-husband did in fact give the deed to the ex-wife, but ex-wife did not refinance the house as the divorce decree required (which would have almost certainly revealed the second mortgage securing the line of credit that she forgot). Thus, the second mortgage securing the line of credit was never released.  Thirteen years later, the ex-husband hit hard times financially, and ran up the line of credit — that was still secured with a mortgage against the ex-wife’s house. Ex-wife’s property is then subject to a six-figure second mortgage for the ex-husband’s post-decree debt, rather than free of that debt as it should have been. So, cancel all secured lines of credit immediately, and get a title exam on the granted house to assure title you are getting is clear.

These things are not automatically addressed by either a divorce filing or by the decree in a divorce. They have to be carefully implemented to conclusion. Everything bad that can go wrong in these steps does go wrong, time and time again. And while said ex-spouse may be on the hook for the breach of the divorce decree, that does not change the reality that the third party creditor has a right to get paid. And if the ex-spouse is flat busted, there will be no recovery from him or her. This is commonly the case.

At present Finney Law Firm does not handle most domestic matters.  But, these are some tips to form a discussion with your divorce attorney to assure all “I’s” are dotted and all “T’s” are crossed in divorce proceedings.

Please share this with a friend going through a divorce. It may save them headaches and a lot of money.