Which Deed To Use When Transferring The Family House Between Spouses
Often in a divorce, one of the parties is awarded the entire jointly owned family residence as his or her sole and separate property. In such a case, the spouse giving up his or her portion of the real property must transfer their interest to the other spouse. There are different deeds that can be used to transfer title between spouses; however, use of the improper deed to transfer real property in a divorce case can result in unintended tax consequences to the spouse retaining the house.
California Constitution Article 13A §1, exempts a transfer between spouses as part of a divorce settlement from reassessment for tax purposes. Such a transfer can be accomplished by using an Interspousal Deed for the transfer of the spouse’s one-half interest in jointly owned real property to the other spouse’s as his or her sole and separate property.
An Interspousal Transfer Deed is preferable to a Quitclaim Deed for a transfer of real property between spouses because it is not considered a “change” in ownership. Thus, transferring the property to the other spouse does not trigger the re-evaluation of the property at current market value, which could translate into a significant increase in annual property taxes to the spouse retaining the property. This is particularly important when the parties have owned the house for many years and the value of the house has significantly increased over time.