There is nothing worse than meeting with a client for the first time and having to explain to the unsuspecting person that they have given away their rights to their largest asset, their house. Most people do not understand that they are significantly reducing their entitlement to equity in their property simply by signing a disclaimer deed during closing.
The most common reason people sign a disclaimer deed is because one spouse has better credit and qualifies for more favorable mortgage terms. As a result, the other spouse is asked by the bank to execute a disclaimer deed because they are not included on the mortgage loan. Regardless of the reason for signing the disclaimer deed, this document is a contract that states the spouse has no past or present right, title, interest, claim or lien of any kind on the property. People generally assume that because the property is purchased during the marriage, it is community property, regardless of how it is titled or what documents were signed. To the contrary, Arizona courts have determined these disclaimer deeds are valid and enforceable agreements between the parties that one spouse shall hold that property as his or her sole and separate property.
Although a disclaimer deed can have a dire effect on the distribution of the equity in a marital residence, all is not lost. If community funds are expended to pay the mortgage or enhance the value of the property, even after the disclaimer deed has been signed, the community is entitled to a share of any equity attributable to those investments. In other words, if the property has positive equity, the community is entitled to a lien against that property for its proportionate share of the investment. While this number is usually significantly less than half of the total equity, it is one way for a spouse to recoup some of the community investment and the increase in value of the property.
It is important to note that disclaimer deeds can also play an important role in determining the ownership of property when spouses want and intend to hold property as separate property. For example, if you own a home before you are married and you sell that home with the intention of using the profits to purchase a new, larger home now that you are married, having your spouse sign a disclaimer deed (and taking title to that property in your name alone) will protect your separate property investment in the new home. It is just as important for that spouse to take title in their name alone, because in that case the Court will assume a gift of the separate funds to the community.
It is important that you understand the effect a disclaimer deed can have on your property rights in a divorce or legal separation. Please look for my blog next week discussing these issues further.
If you would like to work with one of our experienced Attorneys, please call OWENS & PERKINS at 480.994.8824 to schedule your free 30-minute consultation.