Divorce can be hard. Dividing property can be contentious. Fortunately, Arizona law is pretty clear that most property acquired during the marriage is split equally. That seems pretty fair. But there’s one part of Arizona law that, in my experience, is very unfair. That is the current law about the signing of disclaimer deeds (or similar document such as quitclaim deeds or special warranty deeds) during a marriage.
It happens often. A couple owns a home together or decides to purchase or refinance a home during their marriage and for credit reasons, the loan is taken out in the name of only one of the spouses. The lender, as a matter of course, requires the non-purchasing spouse to sign a disclaimer deed which says that he or she waives any right or claim to ownership of the house. I’m sure they have some analytical underwriting reasons for doing this, but what they don’t tell the spouse who is signing the disclaimer deed is that they are giving up their claim for half the equity in the home in a divorce. In a refinance situation, they could be giving up tens or even hundreds of thousands of dollars in equity without realizing it.
The Arizona case of Bell-Kilbourn v. Bell-Kilbourn controls the current status of the law in this area. It is a very harsh case. The trial court found that the house was community property in spite of a disclaimer deed because the intent of the parties was to refinance and put the title in the name of the wife only to get a better interest rate because of her credit score. The Court of Appeals found that it didn’t matter if the house had significant equity from money that came from both spouses or what the intent was. It ruled that a disclaimer deed is a disclaimer deed is a disclaimer deed. If you sign a document that says you waive all interest, that’s what you do.
So, don’t do it. Don’t sign a disclaimer deed without a second contract between you and your spouse if you do not want to give up half of the value in the house.
It’s not hard to solve this problem as long as the solution occurs before or at the time of signing the disclaimer deed. It is very easy for the couple to enter a postnuptial agreement that says, quite simply, that in spite of the signing of the disclaimer deed, the parties by contract agree that the home is community property and the disclaimer deed will have no effect should they divorce. It is important to put some more detail in the contract so I strongly suggest you have a lawyer prepare it, but even an agreement signed on a scrap of paper at the same time of the refinancing is better than nothing.
If you currently have or are thinking about moving forward with you or your spouse entering into home contract as an individual, contact my office to discuss the areas in which you may benefit from an additional agreement regarding your property rights.