Understanding Spousal Liens on Marital Property in Divorce Cases

When a divorce involves marital property, a "divorce lien" is a viable legal option where one spouse, typically the one giving up ownership of the marital property, receives a lien on the property to secure their share of the equity in the property (the difference between the monetary value of the property and any debts against it).

Key Takeaways:

1. A spousal lien allows the spouse leaving the marital home to receive their fair share of equity over time, rather than through an immediate sale.
2. The lien is secured by a promissory note and deed of trust, offering financial protection for the departing spouse.
3. This option can help maintain stability for children by allowing one parent to remain in the home, provided they can afford the payments and property costs.

A Spousal lien acts as a guarantee that the other spouse is going to pay a mutually agreed-upon amount, often by a promissory note combined with a deed of trust, confirming the spouse leaving home still receives a fair share of the marital assets.  

For example, Sally and John are divorcing in a State that divides marital property equitably (as equally as possible and in fairness to each spouse). Sally, the wife, is awarded the marital home in the divorce. John, the husband, who is leaving the home, gets a lien on the home as part of the divorce settlement. The lien is then secured through the issuance of a promissory note and a deed of trust (a mortgage). 

John agrees to take the payments from Sally instead of getting paid cash for his share of the equity in the home via a sale of the home. John, therefore, gets a payment of an agreed amount.  Once John has received all payments in full from Sally, he releases the lien. Sally now has possession of the marital home, and John has his fair share of the value of the marital home.  

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Steps in Creating a Spousal Lien:  

Property Transfer: 

One spouse keeps ownership of the marital home, while the other spouse gives up their interest in the marital home.  

Note and Deed of Trust: 

The spouse keeping ownership signs a promissory note, which is an obligation to pay the spouse giving up a specific amount, either in a lump sum or over a period of time. A deed of trust secures the note. This is essentially a mortgage on the marital home. 

 Protecting the Interest: 

The spouse giving up the ownership of the marital home claim to the property is secured through the lien.  This makes sure that they receive a fair share of the marital interest in the property.  

Payment or Selling the Home: 

The spouse keeping the marital home makes payments on the note (whatever the agreed-upon terms are), or the spouse giving up ownership can sell their interest if needed. A spouse selling their interest usually does so to cover certain expenses (attorney fees or child support).  

Release of Lien: 

If the spouse keeping the home pays the note in full, the spouse giving up ownership then releases the lien.  This allows the staying spouse to either refinance the home or sell the property without the lien attached to the home.  

Spousal lines provide a few benefits. They provide a way for dividing assets if cash isn't readily available or when a spouse wishes to stay in the marital home.  Financially, the spouse leaving the home receives a guaranteed payment or an option to sell their interest.

This means they maintain the ability to get value out of the marital property.  It also allows for a customized and cooperative approach to dividing the often single most expensive marital asset. 

The ability to mutually agree on and meet the specific circumstances and needs of each party can make for a less contentious and more efficient divorce process.  Often, it can be a preferred option to sell the property when minor children are involved, and therefore, maintaining the family home is essential to the children's best interest.  

A few things to consider when deciding if a spousal lien is a viable option: 1) Do you have significant equity in the house? 2) Does the spouse staying in the home have enough income to pay the departing spouse, as well as the mortgage and house expenses? 3) If the departing spouse needs cash now, the staying spouse must be able to make the agreed-upon payments.  

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