What Is a Divorce Lien?
By Ciele Edwards
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Married couples often buy property jointly. In the case of real estate, this gives both spouses an ownership claim against the home. Should the couple later divorce, one spouse may wish to keep the family home. If a former spouse receives the home you once shared in the divorce, you don't automatically lose the equity you helped build in the property. You can retain your claim on the home's equity via a divorce lien.
When a judge awards your spouse the title to the marital home, you can request the court create a lien against the property for the amount of equity you are entitled to. A lien serves as a title encumbrance against a piece of real estate. Should your former spouse sell the home, she must use part of the sale proceeds to pay off your lien. If your former spouse does not satisfy the lien you hold against the home, the home will not have a clear title and the buyer's mortgage company may not approve the sale.
You and your former spouse can negotiate payment of the divorce lien in a variety of ways via a promissory note. The promissory note outlines the terms of the arrangement, how much your former spouse owes you, how much interest your former spouse must pay, if any, on the equity, and how that interest will be compounded.
You may require your former spouse to pay off the lien in full or list the house for sale at a future date. You may also negotiate whether she will pay off the lien in a lump sum or through installment payments. You can request interest in installments even if you and your spouse sign a lump-sum payment arrangement.
Selling the Lien
Depending on how your lien is structured, you may be able to sell the lien to a third party. This third party buyer pays you cash for the lien and becomes the lien holder. When your former spouse sells the home and pays off the lien, she must then pay the new lien holder. You cannot sell your lien if the agreement you and your former spouse signed makes the lien subject to any other conditions. For example, if your former spouse has custody of your children and the lien is subject to your timely child support payments, you cannot sell the lien.
You are not guaranteed the right to create a divorce lien just because a judge awards the marital home to your former spouse in a divorce. You and your former spouse must have built equity in the home for a divorce lien to be a viable option.
If you want your portion of the equity immediately yet your former spouse wants to keep the home, she can do so by refinancing the property. The home's value must exceed the amount of the new mortgage for your former spouse to successfully cash out the equity. Not only does refinancing provide you with immediate cash, it also removes your name from the mortgage loan. This absolves you of your legal liability for the mortgage payments – a responsibility that does not automatically disappear just because your former spouse received the home in the divorce.
- Minnesota Judicial Branch: Common Questions About Real Estate in Divorce
- Lawyers.com: Real Estate Liens
- Divorceliens.com: Divorce Lien Promissory Note (p.1)
- DataMax Marketing: Divorce Liens and Your Note Business
- MkeMortgage.net: Tips for Keeping Your Home in a Divorce
- Federal Trade Commission: Credit and Divorce
Ciele Edwards holds a Bachelor of Arts in English and has been a consumer advocate and credit specialist for more than 10 years. She currently works in the real-estate industry as a consumer credit and debt specialist. Edwards has experience working with collections, liens, judgments, bankruptcies, loans and credit law.