Divorce is not a fun process. There are many decisions that have to be made regarding the possessions you collected throughout your marriage. Who gets the cars? Who gets the furniture? And most importantly (for many couples), who gets the family home? This is where quit claim deeds can come in handy – if used properly. But please be careful! If you don’t use a quit claim deed properly, it may lead to some undesirable consequences. Let’s walk through how to protect yourself while using this type of deed.
What is a Quit Claim Deed?
First, it’s important to understand what a quit claim deed is and how it’s different from other deed types. A quit claim deed is a type of deed used to transfer interest (i.e. ownership) in a property from one party to another. It offers the lowest level of protection. Unlike other deeds, it makes no promises or warranties that the property is lien/mortgage free or that the property is actually theirs to transfer. The quit claim simply transfers one person’s rights or interest in a property to somebody else. But nobody specifies what the “rights or interests” actually are.
For example, your brother could use a quit claim deed to transfer his ownership of your neighbor’s house. His ownership may be zero, so he’s essentially transferring you nothing. It may seem like the deed has a lot of bark but no bite. That is unless your brother collected your life savings for a worthless deed. Or if he actually had an ownership in the neighbor’s house, in which case you now own that!
Because this deed has few protections from fraud, it’s typically only used in one of two scenarios. It’s used in transferring ownership of a co-inherited property from one heir to another or transferring ownership from one spouse to another in a divorce. In these circumstances, both parties know the current state of the title, so it’s a simple and low-risk transfer.
As we mentioned before, quit claim deeds can be a wonderful tool or a source of extreme frustration. Think of it as a table saw. If you know how to use it, it can make your life much easier; however, if you don’t, you can easily injure yourself (or lose your house).
Potential Hazards of Using a Quit Claim Deed During Divorce
The first VERY important point to understand is that the transfer of ownership does NOT remove your financial liability if the home has a mortgage. Ownership and loan documents are two completely separate issues. If you are currently joint and severally liable on the mortgage and your ex misses a payment or pays late (regardless of whether or not you still have ownership):
- The lender can come after you for payment
- Your credit will be affected negatively
So don’t jump into a quit claim deed situation too quickly! Otherwise, you might give away your ownership in the house. And if you’ve got a mortgage with your ex, you may now be on the hook for payments and not own the house!
Always hire a lawyer or closing agency to perform the transfer. If you’ve got a mortgage on the property, you’ll also involve the bank. It’s smart to have both parties sign an agreement saying one will give up ownership to the home to the other if they are removed from any financial liability (i.e. the mortgage).
To give yourself added assurance, include an indemnity clause to protect yourself in the event that your ex-spouse breaches their obligations. For instance, if the court assigns ownership to your spouse, but you can’t get your lender to take you off the mortgage (which is very rare), this clause would allow you to go after your ex if they miss a payment. If you have to make a payment on their behalf to protect your credit or your credit is damaged as a result of a missed payment, you can sue for damages/repayment.
(For some reading on credit scores and divorce, see this great article.)
Bottom line, don’t sign a quit claim deed unless you either get a settlement agreement approved by the court OR the court makes a final ruling. Waiting for court will offer you the best protection possible. Remember, ownership and financial responsibility are different. Don’t play with fire. Leave these matters to the courts and lawyers! Please remember this content was created for informational purposes and is not intended to provide advice for a specific situation. Please seek counsel from your attorney to ensure the best outcome for yourself.