Should I Sign A Quitclaim Deed During (Or After) Divorce?

In order to transfer ownership of the marital home pursuant to a divorce, one spouse is going to need to sign a quitclaim deed, interspousal transfer deed, or a grant deed, in order to convey the title to the property.

In most cases and in most states, including California, a quitclaim deed form is going to be the simplest way to accomplish this. However, signing a quitclaim deed is an important step in the divorce settlement process and the consequences of signing this instrument prior to divorce should be carefully considered.

What is a quitclaim deed?

A quitclaim deed (often mistakenly referred to as a ‘quick claim’ deed) is a document that is used to transfer your interest in a property. Sometimes it’s also called a non-warranty deed.

With each quitclaim deed, there is a spouse that is labeled as the Grantor, and a spouse that is labeled as the Grantee.

A Grantor is the one transferring or conveying their interest in the property.

A Grantee is the one receiving the interest, or the spouse that has agreed to take ownership of the property in their name alone.

How is a quitclaim deed used in divorce?

In a divorce scenario, the grantor is usually the spouse departing the residence. They are also sometimes referred to as the “out-spouse”. The grantee would be the spouse that agreed to retain the property on their own or the spouse that was awarded the property as part of the divorce settlement. This spouse is sometimes referred to as the “in-spouse”.

Spouses in divorce often use quitclaim deeds in real estate transfers. A quitclaim deed does not have any warranties associated with it. In other words, they are not claiming anything about the property itself – such as its condition, value, equity, etc.

This deed simply transfers whatever interest the grantor has in the property over to the other person. With a quitclaim deed, there is also no protection against debts and liens on the property. In the state of California, it’s entirely possible that the grantor does not actually own the property, but has a community property interest. We’ll dive deeper into community property in another article.

Who prepares the quitclaim deed form?

These deeds are basic documents that can be created on your own, or through your family law attorney, or through an escrow or title company.

A quitclaim deed is considered a legal document. As a result, it is always advisable to have a lawyer draft the deed itself or to have them review it before you agree to execute it.

There are several templates available online through your County Clerks website that will allow you to fill out, print and file the deed on your own.

Here is what a quitclaim deed should look like:

quitclaim deed divorce transfer house ownership

 

Some title companies won’t be able to issue a new title insurance policy unless the quitclaim deed was completed the right way and is considered insurable. When a title to real property is insurable, it means that the title is clear and free of any blemishes. In short, this allows the grantee the take any steps they want in the future to finance or sell the property.

A deed that was drafted on your own without the help of an attorney or an escrow company may be deemed uninsurable. If this is the case, the original grantor would need to sign a new deed to make it enforceable. This poses some unique challenges in a divorce situation as one could imagine.

In some instances, the grantor can sign an Uninsured Deed Affidavit to verify that they did truly transferred their interest in the property. Only at this point would the retaining spouse be able to obtain a new, clean title insurance policy to protect against the clouded title. Again, in a divorce setting going back to an ex-spouse to resign a deed affidavit isn’t always as easy as one would hope.

For this reason alone, it is imperative that deeds are prepared properly, signed properly, and recorded properly.

Why would I need to sign a quitclaim deed?

As we just discussed, divorce settlements usually result in one spouse retaining the marital home. The spouse that does not retain the property will likely need to execute a quitclaim deed.

A quitclaim deed will remove the out-spouse (or departing spouse) from the title to the property, effectively relinquishing their equity or ownership in the home. The execution of a quitclaim deed is typically a requirement of a divorce settlement in order to complete the division of assets.

The departing spouse’s interest in the property is likely to be converted to cash via a property buyout, or it can be offset by other community assets that will be retained in lieu of the marital home.

It is presumed that the spouse conveying the property via quitclaim deed has some level of community interest to give up.

Does a quitclaim deed affect the mortgage?

It is a common misconception that signing a quitclaim deed will accomplish BOTH of the following:

  • Remove spouse from the title, AND
  • Remove spouse from the mortgage. This is the furthest thing from the truth.

In fact, a quitclaim deed and transfer of ownership have no impact whatsoever to the status of the existing mortgage.

If the existing mortgage is a joint obligation in both spouse’s names, then that loan will either need to be refinanced or assumed by the retaining spouse in order for the debt to be removed from your credit report.

The quitclaim deed alone does not impact the joint ownership of this lien. If your name remains on the mortgage after you’ve quitclaimed your ownership in the property, any lender can still hold you accountable for the mortgage payments in the event a payment is missed.

Can I (or my spouse) refuse to sign a quitclaim deed during a divorce?

A quitclaim deed doesn’t always need to be signed before the divorce is final.

Your divorce judgment will detail the terms of your property settlement agreement, and the requirement for transferring title will likely be incorporated into this agreement.

Prior to this becoming a legal requirement, it is hard to force a spouse to sign this deed before the divorce. Presumably, there are other issues surrounding the divorce that have yet to be resolved. If a spouse has fears that they will lose leverage in their divorce negotiations, or they are unhappy with the existing buyout terms, that spouse should (in most cases) shy away from conveying their interest too soon in the divorce process.

You can protect yourself by only transferring ownership once all of the assets have been divided fairly.

Can I (or my ex-spouse) refuse to sign a quitclaim deed after a divorce?

Once the divorce judgment has been entered and there is a legal requirement for you to execute a quitclaim deed, you could be held in contempt by refusing to sign.

The judge does have the option of assigning a court-ordered quitclaim deed, which has the same effect of transferring ownership without you ever signing a deed. In other words, you can’t skirt your legal obligation to sign the deed simply by refusing to do so. Again, your divorce settlement is a legally binding contract and is otherwise fully enforceable by the courts.

The process and laws for these court-ordered deeds can vary from state to state, although they are an accepted practice in the state of California. It should be noted that the process for getting a judge to do this can be either fast or slow, depending on the urgency and the courts capacity for these requests.

Can a quitclaim deed filing be reversed?

Once you sign a quitclaim deed and it has been filed and recorded with the County Clerks Office, the title has been officially transferred and cannot be easily reversed.

In order to reverse this type of transfer, it would require your spouse to cooperate and assist in adding your name back to the title. This is not an easy assignment.

The courts would need to get involved if you felt this deed was signed under duress, or if you did not receive the valuable consideration that was a condition of your transferring the property. This highlights the need for careful thought and consideration before executing such an instrument as the quitclaim deed.

The legal ramifications of a quitclaim deed and its impact on community property claims will vary state to state.

How does a quitclaim deed affect property taxes?

There are two potential tax consequences of signing a quitclaim deed in a divorce.

  • Transfer taxes (both City transfer taxes, and County transfer taxes)
  • Property Tax Assessment, or Property Tax Basis
  • Capital Gains Tax via 1099-S

Simply put, tax laws vary from state to state.

In fact, City and County tax laws surrounding transfer taxes will also vary by the specific City & County. In California, there are typically no transfer taxes for the conveyance of real property pursuant to a divorce settlement agreement.

In addition, there is usually no impact to your property tax basis for buying out your spouse’s interest in the home and transferring title to your name as an individual. It’s worth noting that while this transfer doesn’t trigger a reassessment, that’s not to say that your property will NEVER be reassessed in general.

The third tax component of these transfers is a 1099-S that a title company would issue to the Grantor for their ‘gain’ on the sale of their interest.

Below is a copy of what a 1099-S looks like.

1009-s divorce house transfer capital gains sale marital home

 

As your CPA or tax professional can advise you; while you may receive a 1099-S, this transfer pursuant to a divorce settlement is a non-taxable event. You would still note the 1099-S earnings to the IRS, however, these earnings would then be excluded.

Divorce Mortgage Advisors does not provide tax or legal advice and we always suggest you speak to a professional in either of those areas for guidance specific to your scenario.