Potential Gift Tax Consequences
Adding an ex-spouse to a deed can give rise to serious tax consequences. The federal government imposes a tax on transfers that qualify as a “gift.” For tax purposes, a gift is anything given for less than fair market value. The person who makes the gift, called the donor, is responsible for paying the tax. A gift to a spouse qualifies for a tax exclusion, meaning no tax is assessed. A gift from one ex-spouse to the other ex-spouse, however, does not qualify for exclusion above a certain dollar amount. As of 2012, one ex-spouse can gift property to another without a tax penalty so long as that amount is no greater than $13,000.
Other Potential Consequences
Transferring an interest in property to an ex-spouse raises other potential problems. As a co-owner of the property, the ex-spouse is free to sell his interest in the property, even without your permission. His existing or future creditors could look to his interest in the property for satisfaction of his debts. If the property is subject to a mortgage, the mortgage lender could demand full payment of the loan balance as soon as the deed granting an interest in the property is signed. If this occurs, the homeowners must either produce the cash to pay off the mortgage, sell the house or refinance the loan. Finally, adding your ex-spouse could cause your county tax assessor’s office to reassess the value of the property for property tax purposes. You can contact your tax assessor’s office to find out if making the transfer will trigger a reassessment.
Vesting refers to the way in which property owners hold title to property. Common forms of vesting include tenancies in common -- TIC for short -- and joint tenancies. The key difference is that TICs have no rights of survivorship, but joint tenancies do. The right of survivorship means that, upon the death of one co-owner, the surviving co-owners of the property automatically inherit the deceased owner’s interest in the property. With a joint tenancy, the co-owners cannot pass their interests under a will or trust. With a TIC, the co-owners can leave their interest to beneficiaries under a will or trust.
Preparing the Deed
If you do decide to add your ex-spouse to the title of property, you must do so by way of a deed. Fill-in-the blank deeds are commonly available at office supply stores, or you may want to use an online legal document service. You must sign the completed deed before a notary public and give it to your ex-spouse. You spouse must then deliver the signed deed to the county recorder’s or land records office. The county will return the deed by mail after recording it.