When a couple gets divorced, all of the property accumulated during the marriage is accounted for, divided, and then distributed. For many, a refinance after divorce can be overbearing. Taking sole possession of smaller assets like furniture or home goods is relatively straightforward. But dividing large assets, mainly the family home and vehicle(s), requires some additional work when the property is subject to a loan or mortgage. There is a common misconception that you are free of any obligation for property if you file a quit claim deed. This is not true. A financial obligation for marital property exists separately from the ownership right of the property. They are two distinct issues. You must remove yourself from the mortgage or loan as well as removing yourself from the title. If you do not do both, the bank could still come after you if your ex defaulted on the mortgage one day, even if you two agreed at divorce that you would no longer make payments. Continued co-ownership of property typically can lead to other difficulties if one party fails to pay taxes, neglects to keep the property insured, or disregards the need to make necessary repairs. Don’t overlook the importance of resolving these financial issues.
In most cases, the only way to remove your name from the mortgage or loan is to pay it off. Some couples pay off the mortgage by selling the house and applying the sales proceeds to the debt. But if one party intends to keep the property, then they must refinance the debt in their name alone. Refinancing essentially creates a new mortgage in one name which pays off the old mortgage held by both parties. There are a few prerequisite steps to refinancing, which include determining the other spouse’s equity in the property and compensating them accordingly. It may seem daunting, but the process can be summed up in four steps: calculate the asset’s value, determine each person’s share of equity, refinance in one person’s name alone, and file a quitclaim deed.
Four Steps to Successfully Transfer Ownership of Joint Assets to One Person
Step 1: Calculate the Asset’s Value
The process of refinancing after divorce begins with determining the fair market value of the property. In North Carolina, all assets and debts owned on the date of separation are valued as of the date of separation. This is important to note because you cannot get divorced until you have been separated for a year, meaning the value of a car or home on the day your divorce is finalized may not be the same number as what you use for the division.
• House or Apartment
There are a few ways to value a home. You can visit websites like Zillow or Trulia which offer estimates based on the local market, or consider the value assessed by the city or county for property tax purposes. Spouses working together could agree to use these values, even if they are not always the most accurate. The most reliable method would be to hire a real estate appraiser or realtor, who can give a precise quote based on your specific property. If both spouses are willing to cooperate and agree on the refinance, then you can hire a joint appraiser. Alternatively, both parties can hire their own appraiser and submit these reports to the court to decide the property’s value.
• Vehicles
You can look up the fair market value of a vehicle through services such as Kelley Blue Book or the National Automobile Dealers Association. Some auto insurance companies are also able to give a quote if they insure your vehicle. The value will depend on the mileage, condition of the car, and any history of accidents as it was on the date of separation. The couple can agree on the value to be used together, or they can present their findings to the court to reach a decision.
• What is Owed on the Property?
Next, you need to determine the exact balance of any loans, mortgages, lines of credit, or other liens that may exist. You can easily request a “payoff” quote from the lender by calling or going online.
• Fair Market Value – Balance Owed = Equity in Property
Now you can determine the value by calculating the equity. Equity is the property’s value minus the amount owed. For example, imagine a couple owned a house that is valued at $275,000 with an outstanding balance of $175,000 on the mortgage. $275,000 minus $175,000 means the home has a positive equity of $100,000. The couple also has two vehicles, a sedan and a pick-up truck. The sedan’s market value is $14,000 and there is a loan with a payoff of $4,000. The truck has a market value of $10,000 and is not subject to any loans or liens. Thus, the two family vehicles both have a positive equity of $10,000
Large Marital Assets Example:
House – positive equity of $100,000
Sedan – positive equity of $10,000
Truck – positive equity of $10,000
Step 2: Determine Each Person’s Share of Equity Before Refinancing
Equity is divided like all other marital assets. You and your spouse can decide how to split the home and cars in a separation agreement, or the determination will be made by the court. In North Carolina, the court will tally all the assets and debts accumulated during the marriage and divide them equitably, meaning fairly but not necessarily equally. The determination of equitable distribution presumes a 50/50 split as the baseline and makes adjustments to each spouse’s share as needed based on any good cause for unequal distribution. Good cause for unequal division is based on the existence of several factors including; income-earning potentials, one spouse’s health, parental needs relating to custody of children, a spouse’s business or unvested pension interest, and similar economic factors. Most cases result in both spouses receiving a near 50% of the property.
Equitable distribution does not always mean every item is individually split between the parties. Instead, when a piece of physical property is awarded to one person the equity value of the asset can be offset by the award of another asset to the other person, or the court could mandate that an asset be liquidated and the proceeds of the sale be split equitably. Using our example above, we can clarify the math a bit for physical property that one party intends to keep.
Let’s say the husband wants to stay in the marital home because he has primary physical custody of the kids. The court decides to give the house to the husband, finding that it would be beneficial for the kids to remain in the home they have always lived in. There are a few options for how the wife’s interest might be offset. The court could award her $100,000 worth of other marital assets, or decide she has a percentage of equity in the home requiring the husband to “buy out” her interest. The wife’s share of the home’s equity would equal $50,000 (50%). The husband could compensate the wife right away by liquidating $50,000 in his share of assets or negotiating to give the wife another item of equal value. However, most couples do not have enough cash or equal valued assets to offset such a high dollar amount. Thus, the husband, wishing to stay will need to buy out the wife’s share of equity through the refinancing after divorce process.
In the above scenario, the couple could decide to each take one vehicle, or the court could reach this conclusion since the equity amounts are equal. In allocating vehicles, the court might consider the specific use or utility of the vehicle. If the husband uses the truck for work, he has a stronger case for why he should take the truck. Both vehicles have a positive equity amount of $10,000 but the sedan still has a loan attached, so it will also need to be refinanced.
Step 3: The Person Keeping the Asset Refinances after Divorce and “Buys Out” the Other Spouse’s Equity
The only way to remove a spouse’s name from the mortgage or auto loan is to apply for a new loan in one spouse’s name alone, which is used to pay off the balance of the prior loan. This process is more commonly referred to as refinancing. The process for refinance after divorce can be described as a division of assets. The husband wants to keep the house and truck, while the wife would like to keep the sedan. Both parties have a $50,000 interest in the house and the equity amounts in both vehicles are equal.
The wife will refinance the sedan in her name alone. There is no buy out involved because the couple agreed to each keep one vehicle valued at $10,000.
The husband however, still needs to compensate the wife for her 50% share of the equity in the home. To do so, he will refinance the property and buy out the wife, by withdrawing $50,000 cash from the home equity from the new mortgage to pay her share.
Step 4: The Parties File a Quit Claim Deed Transferring Ownership to One Person
We have calculated the value of the assets and debts, determined each spouse’s share of the equity, successfully refinanced the properties individually, and settled any shares of equity through buy outs as needed. All that is left now is for the parties to remove each other’s name from the titles. This is achieved by filing a quit claim deed for the house, and by visiting the DMV to update registration on vehicles. When refinancing is necessary, the lender will often assist you in signing off a quit claim deed or adjusting the car title. The process is not too complex. If you are comfortable, it is possible for spouses to do it themselves.
A quit claim is the fastest and most affordable way of removing someone’s name from the property title. In a nutshell, a quit claim deed is a legal form which transfers real estate from a grantor to grantee. For marital property, the grantor is actually both spouses together. In order to correctly remove an ex-spouse and prevent any possible title issues in the future, the deed will need to transfer the entire property interest from both spouses to the person that intends to keep it. The form requires the signature of both spouses, in the form of a Notary Public. Once notarized, the document is filed with the Register of Deeds in the county where the property is located.
