In most marriages, buying a house is a reason for celebration and represents a great milestone for married couples. Each spouse is considered an equal owner of the property. Sadly, when a marriage fails, the house is often sold to a third party. The children are forced to move when the couple goes their separate ways. This process can be quite disruptive and place added stress on the children. However, if one spouse wishes to remain in the house, the departing spouse, an equal owner in the home, can retain his or her claim on the home’s equity via a divorce lien. While rarely used, a divorce lien does not allow for a “clean split” of the couple’s assets. However, it could be an option to avoid the turmoil of selling the house and splitting the money, when one spouse is unable to refinance or otherwise “cash out” the other spouse.
How Does a Divorce Lien Work?
If the couple agrees on which spouse will possess and purchase the house, a lien may be created against the house in the amount of the equity the parties agree that the departing spouse is entitled to. A lien would serve as a title encumbrance against the real state. Should the spouse who was granted the house decide to sell the house, he or she must pay off the lien at the time of settlement. And, in order for the purchaser to obtain a mortgage, the home title must be “clear” and have no liens.
Depending on how the lien is structured, the option to sell the lien to a third party for cash may exist. The third party would pay cash and become the holder of the lien. Should the possessing spouse later sell the home, he or she would pay the lien holder.
Considerations in the Case of a Divorce Lien
There are a few conditions that must be met in order for a divorce lien to be a viable option.
First, there should be equity in the home. The value of the home must exceed the mortgage in order for equity to exist, to enable either spouse to be able to “cash out” on any future equity. Second, the remaining spouse must be able to maintain the property and pay the mortgage. And third, the non-possessing spouse must be willing to wait to cash out on any equity interest in the house.
If one spouse wants to possess and purchase the house, and the other is seeking his or her share of the equity in the home immediately, then a divorce lien is not an option. The house would then be sold from the couple to the individual who would be retaining the home. The possessing spouse would have to qualify for a mortgage on his or her own and refinance. If refinancing is an option, the spouse who is moving from the home would be able to obtain immediate cash and be removed from the mortgage.
In addition to liens on the marital property, divorce liens can be created on other assets besides the family home. For example, investment properties and businesses can be divided in a similar manner.
Get An Attorney
Keep in mind, it is wise to have any proposed divorce lien reviewed by an attorney to ensure that the lien is properly structured. Scott Bonebrake practices family law in Media, PA, and has been a licensed attorney for nearly 25 years. Please feel free to contact Scott if you have any legal questions, including those regarding any divorce issues. You can reach Scott at 610-892-7700, or at email@example.com.