Divorce Liens on the Family Home
If you are getting a divorce, or know someone who is getting a divorce, you will find it helpful to know about divorce liens.
A divorce lien can avoid the usual turmoil of selling the house and splitting the money — the home often being a divorcing couple’s largest single asset.
With a divorce lien, one party keeps the house, and the other gets a note and deed of trust (or mortgage) secured by the property. One gets real estate and the other gets paper.
In this arrangement, the spouse who keeps the home (often the wife) has the same familiar environment for herself and the children. The children don’t have to change schools. There are no divorce relocation costs. She retains a fair share of the equity and hopes that the price of the home goes up. She has the obligation to pay the departing spouse according to an agreed-upon schedule.
The departing spouse (often the husband) signs a deed to the house over to the wife, and in return gets a note and a deed of trust secured by the home — a divorce lien. The departing spouse can hold the note until it pays off, or he can sell it for cash. If the departing spouse has no need for immediate cash, he can accept a payoff — in many cases, in about five years — or when the youngest child is eighteen. If the departing spouse does need immediate cash, he can sell the note and, ordinarily, receive tax-free money. This provides funding for new living quarters, help in paying attorney fees, child support, and a new start in life. If he sells the note, this financial connection to the house ends.
This win-win scenario can ease the pain of a divorce to a small degree. However, a divorce lien is not for every case. The divorcing couple’s situation must meet some guidelines. First, the family must have substantial equity in their home. Second, the spouse who retains the home must be able to afford property maintenance and the payments on the first mortgage — a divorce lien is usually a second mortgage. Since a divorce lien also requires a certain minimum of cooperation between the divorcing spouses, you will recognize at the outset that some divorcing couples may not agree to this approach. When it is possible, it gives benefits to both parties that would not otherwise be available.
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