In a divorce, the court is tasked with distributing property owned by a couple during the marriage. Real estate presents a unique issue because it is not easy to physically divide and is subject to state-specific ownership rules upon the death of a former spouse. Understanding how death affects each ownership type will help you avoid unintended consequences after your divorce is final.
Property owned by a married couple must be divided in divorce. Although state law can vary, when spouses can agree, they may enter into a settlement agreement. If they cannot agree, a judge will determine how to divide the property, either equally or on the basis of fairness after evaluating the circumstances of the case. As part of the process, the court and spouses have the power to conform ownership of real property to the agreement or order.
Types of Ownership
There are three basic ways a married couple can own real estate. One way is as tenants in common, which means each spouse owns a one-half interest in the property. In this case, each spouse's 50 percent share is freely transferable without the consent of the other spouse, and will pass according to the owner's wishes at death. Another way is as joint tenants with a right of survivorship, which does not provide each spouse with a fractional interest in the property. Instead, upon the death of a spouse, all of his interest automatically transfers to the other spouse. A final method of ownership is tenancy by the entirety, which operates exactly like a joint tenancy but is only available to married couples.
Tenancy by the Entirety
The differences in ownership may not appear important at the time of divorce. However, because of the survivorship feature built into joint tenancies and tenancies by the entirety, the death of a former spouse can have serious implications on your ability to pass an inheritance. For that reason, some states automatically convert a tenancy by the entirety into a tenancy in common upon divorce. This effectively prevents a former spouse from receiving all of an ex-spouse's property upon his death, unless the parties or court specifically intend this result and create a joint tenancy.
Unless there is action by the parties or the court, a joint tenancy is unaffected by divorce, and all property passes to your former spouse upon your death. Further, some states, such as New Hampshire, do not recognize tenancies by the entirety and will instead treat them as joint tenancies. This can be problematic if the parties intended to create a tenancy by the entirety and mistakenly assumed it was converted into a tenancy in common at divorce. Some courts have addressed the issue of mistake by looking instead at what the parties intended at the time of divorce and retroactively changing ownership to tenants in common.