Most divorce agreements provide that one party retain ownership of the marital home. The other party “Quit Claims” their interest. There are some serious matters to consider. Transferring the home (or a car or any other item) does not relieve the person surrendering the property from liability to the mortgage holder. This means that the person who transfers the home is still liable to the bank, even though they don’t own the home anymore. In addition, the loan will remain on the seller’s credit report, thus making it difficult, if not impossible to buy another home.
Here are some steps to take. Require the person receiving the home to refinance. However, this can be an empty requirement if the person cannot refinance. Thus, it is best to find out from the lender if they are likely to allow a refinancing before putting that provision in the agreement. In the recent decision of Mitchell v. Mitchell, No. 2010–CA–00897–COA (Decided 8/9/11) the agreement required Kimberly to “attempt to refinance.” She was unable and when Bobby sought to hold her in contempt, the Court found that she was only obligated to try and was not obligated to succeed.
Another solution is to retain a security interest in the property. If the person does not make the payments, the security agreement would allow taking over the property and making the payments. This would be similar to a second mortgage. The best solution, however, is to predetermine if the person would qualify for refinancing.