What is an interspousal transfer deed?
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Sometimes, property you own jointly with your spouse needs to be transferred to just one of you as the sole owner. Often, this happens as part of divorce proceedings, but it could also be done for financial reasons or something else entirely.
To make this sort of property transfer, you don’t need to sell your house to your spouse. You may not even have to pay taxes. In many jurisdictions, you can make this kind of ownership change by taking advantage of what’s called an interspousal transfer deed.
What is an interspousal transfer deed?
An interspousal transfer deed, more technically called an interspousal transfer grant deed, is a legal document used to give sole ownership of shared property, such as a house, to one person in a marriage.
They are commonly employed in divorce cases to transfer community property to one spouse. A more equitable course is to have the spouse remaining in the home agree to refinance under their own name or sell the place to potentially give the ex a fair disbursement of equity, depending on the circumstances.
When is an interspousal transfer deed used?
While they’re most often used in divorce proceedings to transfer property to one spouse, interspousal transfer deeds can have other uses as well.
Sometimes, lenders ask the spouse of the borrower to sign an interspousal transfer deed so that a vindictive spouse can’t try to claim half of the recovered debt should a foreclosure sale happen in the future.
Other times, interspousal transfers are arranged if one spouse’s credit problems are hampering the other spouse’s finances, even if the marriage is rock-solid.
Do you need one?
Interspousal deeds are only needed for property actually shared in your marriage. In other words, they aren’t applicable to any gifted property.
For example, let’s say you’re a very wealthy couple and you bought your partner a beach house as an anniversary gift a few years ago, putting only their name on the deed. Now you’re getting divorced. Because the beach house was a gift, it’s considered separate, not marital or shared property, so an interspousal transfer deed would not be required. Your ex would still have the rights to the property, despite you purchasing it.
Interspousal transfer deed rules
- Property can be transferred at any time: Divorce or financial hardship are usually the most common reasons to seek a transfer, but you don’t need to split up or meet any other special circumstances in order to transfer property using an interspousal transfer deed.
- Taxes: Interspousal property transfers are usually not taxable, so it can be a cost-effective way to move property from one spouse to the other without having to pay gift or transfer taxes.
- Timeline: Tax exemptions for interspousal transfers end one year after a divorce is finalized. If you’re going through divorce proceedings, it’s best to sign the interspousal transfer deed documents while you’re still legally married to take advantage of the tax benefits. If you wait too long, you’ll be on the hook for those extra costs. But if you’re married and undertaking an interspousal transfer for some other reason, there’s no time limit for signing off on the transfer.
If you live in California
In California, all property obtained during a marriage is considered communal, and therefore would qualify to be split evenly during divorce proceedings. However, a California appeals court ruled in 2018 that interspousal transfer deeds contained the necessary language to “transmute” property from communal to individual. Basically, the state upheld the validity of interspousal transfer deeds, and agreed that they effectively transfer the title of a property.
Interspousal transfer deed vs. quitclaim deed
The main difference between an interspousal transfer deed and a quitclaim deed is that, when using a quitclaim, the spouse who is giving up their interest in the shared property may still be liable for the mortgage or other debts associated with the property.
An interspousal transfer gives full interest in the property to the transferee, whereas a quitclaim leaves the transferer still liable for any obligations related to the property, even though the transferer no longer has a residential interest in it.
How to prepare an interspousal transfer deed
As with any legal documentation, it’s best to consult with an attorney to draw up an interspousal transfer deed. If you’re in divorce proceedings, you likely already have access to one.
However, you can find interspousal transfer deed templates online, as well. If you choose to create one yourself, know that an interspousal transfer deed must be completed in writing and must list the spouses involved in the transfer. The document must also identify the property being transferred by address, be signed before a notary and be recorded in local government offices in the county where the property is located.
Keep in mind, though, that not all jurisdictions recognize interspousal transfer deeds, and rules vary by location. It’s still strongly recommended to enlist an attorney for help.