How to Transfer Title of House to Spouse
You’re newly married, and in love. You expect to spend the rest of your life with your new spouse, and want to share everything with them.
Perhaps you have been more successful, or more fortunate than they have been, so you own your own home where you are both living, and you want to make sure that even if you die, your new spouse won’t have to move.
Transferring real estate to spouses is an important consideration (and you may want to consult with a real estate attorney).
Transfer Home Title…
Should You Gift to Spouse…
Newly married couples often want to transfer interest in the house that was owned by one of them before marriage to the other.
This is almost always a bad idea, and detrimental to the spouse that owned the property before the marriage.
Property owned before marriage is separate property, and in the event of a divorce, separate property cannot be divided by the court without an agreement. Once an interest in the house is given to the other spouse, the house usually becomes ½ the separate property of each of them.
This is because the new spouse doesn’t pay anything to acquire their interest in the house, so the transfer is a gift and gifts are also separate property. Worse, if the deed is prepared incorrectly, title to the whole house may be lost.
(For example, if the deed does not specifically provide that the new spouse is receiving only a ½ interest, the whole house may have been conveyed.)
Either way, once you’ve transferred the property, you won’t be able to get it back, regardless of what happens in the marriage.
Due On Sale Clause
If there is an outstanding mortgage on the property, then another risk created by deeding part of the property to your new spouse is that any transfer of ownership is probably a violation of the due on sales clause in the deed of trust.
Normally, as long as the mortgage payments are being made, the lender doesn’t enforce the due on sale clause. However, if interest rates rise, we could see a change in that approach, with loans being unexpectedly called due. The result is likely to be either a foreclosure, or an expensive refinance.
Tax Consequences of (Gift) Title Transfer
You and your new spouse should be aware of the possible tax consequences of deeding part of the house to them. Although most gifts between spouses are not subject to gift tax, a large gift may exceed the limits for tax free transfers to spouses if your new spouse is not a citizen.
Homestead & the I.R.S.
Finally, if the reason your spouse doesn’t own a house is that they have unpaid debts, transferring part of the property could expose it to their debts. Although in Texas, a homestead is exempt from the claims of most creditors, a notable exception is the IRS.
In one case, the wife owned a house before marriage, and transferred a ½ interest to her new husband, who had a large unpaid tax debt. When the IRS discovered that the husband now had property, the IRS came to claim their “share”.
Options for Sharing Property with Spouse
The risks of transferring property to your new spouse are unnecessary, and there are several ways to achieve your goal of securing your new spouse without risking the loss of your separate property.
Last Will & Testament
The first and most obvious is to prepare a will. That way you can retain your separate property rights, and still make sure that on your death, your new spouse will inherit the house.
Since marriage is a significant life event, it may be necessary to have a new will prepared anyway.
Transfer on Death Deed
A second option is a Transfer on Death Deed, which is useful if the house is the only significant property you own. The deed is filed in the real property records, but doesn’t take effect until your death. The recipient just files an affidavit of death to make the deed effective.
Purchase Between Spouses
You could allow your new spouse to actually purchase part of the property from you, perhaps with the help of a new mortgage, on which you are both liable. In that situation, you would retain your separate property rights to ½ of the house, and their ½ would be community property, and remain divisible on divorce, which allows for some protection to the selling spouse.
Rental Property
Another good option is to keep the house as rental property, and buy another house to live in with your new spouse. Although the rental income will be community property, the house itself will remain your separate property.
Texas Homestead Laws
Finally, you always have the option of doing nothing. Due to Texas homestead laws, the property that you and your spouse live in is their homestead for some purposes, even if their name is not on the deed. Therefore on your death, your surviving spouse is able to stay in the property.
Although their rights will still be subject to the mortgage, property taxes and homeowners association dues, that’s also true even if you deeded part of the property to them.
If you have questions about transferring title to your house, call your favorite lawyer, because it…
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