The Refinancing Conundrum: Will Refinancing Make Your Pre-Marital Home Joint Property?
According to The Mortgage Reports, 2019 was a fantastic year for mortgage rates. Rates dropped early and stayed low all year long providing great opportunities for home buyers and refinancers. 2020 is projected to maintain rates below 4% as well, which makes the idea of refinancing a high percentage mortgage look very appealing.
Before you jump into refinancing, there are some important legal considerations to think through especially if you owned your home prior to your marriage.
If you purchased your home prior to your marriage and have not added your spouse to the deed or title, then your home is considered separate personal property, not marital property. Before refinancing, you must consider if you want your home to become joint property or remain your personal property.
It is also important to note that any increase in value in the property from the date of your marriage until your separation or the sale of the property is considered marital property. Marital property is defined as all property acquired during the marriage, except inheritance and gifts from third parties.
Should you keep your home in your name alone or add your spouse to the mortgage and deed?
There is nothing wrong with adding your spouse to the mortgage or deed. Sharing the bills may be a benefit to your family. Keep in mind though that by adding your spouse’s name to the title and/or deed when you refinance will change the home from your personal property to marital property.
The bank you refinance through requires the deed to be in joint names for refinancing. Now what?
When refinancing, some financial institutions require the deed to be in joint names. Some may also rely on income or credit that is part of your marital estate. In both cases, the proceeds of the loan or your home may become marital property.
To prevent this from occurring, you can enter into a Post-Nuptial Agreement that excludes the asset as marital property in the event of death or divorce. Your real estate attorney should consult with a family law attorney like Lepley, Engelman, Yaw & Wilk LLC to have the agreement prepared before the refinancing paperwork goes through.
If divorce is imminent, how can you minimize the buyout cost for joint property?
If you have not entered into a Pre-Nuptial or Post-Nuptial Agreement and a divorce is imminent, a divorce attorney can advise you how to minimize the amount of money you will need to buy out your spouse’s interest in the property – if the property was deeded into joint names during the marriage. Pennsylvania does not divide property on a 50/50 basis and your spouse. Lepley, Engelman, Yaw and Wilk, LLC can help you try to minimize the amount your spouse is entitled to receive.
An additional warning and consideration for those who jointly own their homeIf your home is jointly owned and you desired to refinance, but you have poor credit, proceed with caution as well. Financial institutions often consider the lowest credit score for a joint mortgage, which may hurt your ability to refinance at a low rate.
However, if your spouse leaves you off the loan and removes you from the deed as a way to protect your jointly-owned home’s assets, you may be forfeiting your share of the equity in your home and legally making it your spouse’s personal property instead of joint marital property. To leave you off of the refinanced loan and remove you from the title or deed, you would need to sign a quit claim deed or disclaimer deed. By signing one of those deeds, you may be signing over your rights to the home and it’s equity in the event of a death of divorce.
If you plan to refinance your home, it is wise to consider whether your home is separate or marital property and whether you wish it to remain that way. If you refinance and add your spouse to the deed or title, realize that you are making that property joint marital property unless you enter into a Post-Nuptial Agreement. If you refinance and remove yourself from the deed to use your spouse’s better credit score, realize you may be forfeiting your share of the equity of the home in the case of a divorce.
Regardless of which route you plan to take, speaking with an experienced family law attorney like those at Lepley, Engelman, Yaw & Wilk, LLC is always a wise choice to ensure you and your family’s rights are best protected. Call us today with your questions at (800) 422-5396.