Marital Home: Interspousal Transfer Deed

An interspousal transfer deed is different than a quit claim deed. The interspousal transfer deed is used for allocating the home to one spouse as part of a divorce settlement because it transfers their interest without tax consequences. I t also affords certain legal protections.

Through a deed, one spouse can give her or her own property to the other, and the property becomes the receiving spouse’s separate property.

Often, parties use a “quit claim deed” which transfers whatever interest one spouse has in property to the other spouse. An important difference between an interspousal transfer deed and a quit claim deed is that a quit claim comes with no guarantees or property ownership.

With a quit claim deed one spouse may give up rights to certain property but not necessarily liability for any mortgage or lien on the property. A problem could arise if one spouse is awarded the marital home in a divorce and the other spouse uses a quit claim rather than interspousal transfer deed to transfer his or her interest. The spouse that gives up his or her interest to the house may still be responsible for one-half of the mortgage debt or other debts associated with the property because their liability cannot be transferred through a Quit Claim Deed.

The interspousal transfer deed transfers the titled of property between the parties. It can be used to avoid tax liability when transferring property. Usually when the title to a property is transferred, the county may impose a transfer tax and reassess the value of the property, leading to potentially higher taxes.

An interspousal transfer deed is exempt from transfer taxes and is a cost-efficient way to transfer property between spouses.

The interspousal transfer deed needs to be completed and recorded correctly to be valid. Typically, an attorney will prepare property transfer documents. If not prepared by a professional, the deed may not always be insurable. An uninsured deed is a deed that has not been examined by a title company. This can be a problem when trying to sell or refinance in the future.

The ex-spouse who was removed from the title may need to sign an uninsured deed affidavit to verify that the transfer was voluntary, valid and authentic, free from any coercion or duress.

A professionally prepared deed should be completed and must:

·      Be in writing

·      List the spouses involved in the transfer

·      Identify the property being transferred by address and/or legal description

·      Be signed before a notary public

·      Be recorded in the county where the property is located

IRS Code Section 1041 allows any-spouse to-spouse transfer of property that is related to the divorce to be tax-free. Tax exemptions for interspousal transfers end one year after a divorce is finalized.

The timing of the interspousal transfer deed may take place either during the pendency of the divorce or post-divorce. If the divorce is amicable and the decision for one spouse to be awarded the marital home is solid, then it is fine to move forward before the divorce is final.

However, in cases where there are disagreements, or negotiations turn sour, if the title has already been transferred, then there may be crucial negotiation leverage that has been given up.

Keep in mind, though, that not all jurisdictions recognize interspousal transfer deeds, and rules vary by location. It is strongly recommended to enlist an attorney for help.

Note:  This article is for informational purposes only and is not intended to provide either tax or legal advice.  Please contact your attorney or accountant and rely on their independent research and advice for these matters.