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We are divorcing but we aren’t ready to sell the house…

There are times when couples choose to own real estate together even though they are divorcing.  Usually it is the marital residence which they chose to keep.  It is important that they understand some basic real estate issues in order to make decisions on how they should own the property in order to meet their expectations if one of them die while the property is jointly owned.

In New York State, the majority of married couples own their homes as Tenants by the Entirety.  To create a tenancy by the entirety, the deed transferring the property to a married couple must name them as Tom Doe and Natasha Doe, “husband and wife”, or “tenants by the entirety”, or even “his wife”.  Once the tenancy by the entirety is created, if one spouse dies, the other spouse is automatically the owner of the entire property.  Even if the magical words are missing, it presumed a married couple owns a property as tenants by the entirety.

The important fact to remember is that only a married couple can own property as tenants by the entirety.  Once the divorce is finalized, the tenancy by the entirety is dissolved.  Under New York State law, unless other steps are taken, the divorced couple becomes Tenants in Common.  The consequences are significant.  Tenants in Common each have a percentage ownership in the property.   Either owner can transfer his or her share to a third party.  No permission from the other owner is needed.  Absent an agreement to the contrary, either tenant in common is entitled to live in the property.  There is basically no requirement that costs to maintain the property be shared and there is definitely no requirement the costs of improving the property be shared. Equally as problematic is that upon the death of one owner, their percentage share goes through their estate.  Either their will or if no will exists, the laws of intestate succession dictate who will become the new Tenant in Common.  The horror story most often told is when the first wife and husband own the marital residence as tenants in common and then years later, the husband dies leaving his entire worldly estate to his new wife.  The result is his two wives now own the first wife’s home as Tenants in Common. While I have yet to meet someone who actually had clients involved in this scenario, the story could easily be true.

The parties may choose different options to address the problem of Tenancy by the Entirety converting to a Tenancy in Common.  The memorandum of understanding should set forth the intention of the parties and their course of action to achieve their desired outcome.  One choice is to have the deceased spouse’s share to go to a specific party or group.  Some examples are the couples’ children, their grandchildren, or someone else both owners desire to have a share in the ownership of the property.  Another choice is to have the deceased spouse’s share go to the surviving spouse.  This option can be secured through an agreement that each spouse will prepare a will which sets forth the required alternative.  Many attorneys prefer another solution. They have the parties deed the property to themselves as Joint Tenants with Rights of Survivorship.  This type of ownership functions just like the Tenancy by the Entirety but without the requirement the parties be husband and wife.  The new deed will list the parties   “as joint tenants with rights of survivorship”.  From that point on, if one party dies, the other party owns the entire property.

While the couple can do the research to determine the options they believe they should pursue, it is important they discuss with their attorneys and their accountants to be sure they fully understand their choices and then to be sure they complete whatever option they choose correctly to avoid problems in the future.

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