Interspousal Transfer Deeds: Transferring Property Between Spouses in Divorce

A deed is a written document that legally transfers property from one person or entity to another. In some states and counties, a deed that is used to transfer property between spouses is called an "interspousal transfer deed" (ITD).

Every state has different rules about what types of deeds may be used when spouses are transferring property to each other—as well as what must be included in the deeds and how they must be recorded. But here's an overview of what you should know about ITDs when you're going through a divorce.

What Is an Interspousal Transfer Deed?

"Interspousal" means "between spouses." So an "interspousal transfer deed" is literally a deed between spouses that transfers title (ownership) of real property, either during their marriage or as part of the property division in their divorce. Although every state has its own laws regarding deeds, in most states an ITD will be either a grant deed or a quitclaim deed.

The type of deed you'll use—an interspousal grant deed, an interspousal quitclaim deed, or some other type of interspousal deed—depends on what types of deeds are recognized in your state, as well as your individual circumstances and what you hope to accomplish when you transfer the property. If you have any doubts about what type of deed to use in your situation, it's best to contact a local real estate attorney for advice.

What Is a Grant Deed?

A grant deed (also known in some states as a "special warranty deed" or "limited warranty deed") passes title to property, along with guarantees that the person selling or giving the property (the "grantor"):

• hasn't already sold the property to someone else, and
• isn't aware of any liens or other encumbrances put on the property while the grantor owned it.

The person receiving the property (the "grantee") can sue the grantor if they find out that either of these promises has been broken. Grant deeds are used widely in residential real estate transactions.

The only type of deed that provides greater protection to the grantee is a "warranty deed." With a warranty deed, grantors are giving the two promises included in a grant deed, plus a promise to defend the title if any outside party comes forward and challenges the status of the title—not just for actions taken by the grantor, but for problems that arose even before the grantor owned the property.

What Is a Quitclaim Deed?

A quitclaim deed transfers property with a much more limited promise than a grant deed. With quitclaim deeds, grantors aren't promising that they haven't sold the property previously (as would be the case with a grant deed). Instead, a quitclaim deed simply transfers whatever interest—if any—that the grantor has in the property. If the grantee discovers an issue with the title after the transfer, they can't sue the grantor.

Quitclaim deeds are commonly used in a variety of situations, including:

• transferring property to one spouse as part of a divorce
• settling an ambiguity about inherited property
• transferring property to or from a revocable living trust, and
• changing the way owners hold title to the property.

Quitclaim deeds are used most often when no money is being transferred between the parties, or when the parties trust each other. Although quitclaim deeds are usually short and simple, be aware that many states require certain language to be used in the deed itself. You can often find state-specific quitclaim deeds online or at the clerk and recorder's office.

Interspousal Deeds and Your Mortgage

If you and your spouse have a mortgage on your property, and both spouses are named on the mortgage, it's important to note that deeding the property into one spouse's name alone will not relieve the grantor spouse of responsibility for paying the mortgage.

There are two ways to transfer the mortgage into only one spouse's name:

• Many divorce decrees or settlement agreements require that the spouses refinance the property within a certain amount of time (usually within a few months after the divorce is final). Refinancing under only one spouse's name will ensure that the other spouse is no longer financially responsible as of the day the refinance "closes" (is complete).
• If the mortgage lender will allow it, you might be able to have one spouse released (removed) from the mortgage. Getting a release is often a better option than refinancing—especially when interest rates are high or the grantee spouse can't qualify to take on a mortgage in their name alone. Not all lenders will agree to release, though, so you'll have to discuss the possibility with your lender. If the lender is agreeable, you'll likely have to provide the lender with a quitclaim deed and copy of the divorce decree.

Until the grantor spouse is released from the mortgage or the refinance is complete, the lender has the right to collect from the grantor. And, if the mortgage is unpaid for a long enough time, the lender has the right to foreclose on the property, which will have long-lasting effects on the credit of all parties who remain named in the mortgage.

Why Bother Designating a Deed as "Interspousal"?

When a deed of any sort is used to transfer property between spouses, it's "interspousal"—regardless of what it's called. So it usually doesn't really matter whether you title a deed as "interspousal."

However, there might be situations when you want to make it clear that the deed is between two spouses—usually to avoid triggering:

• a transfer tax or
• reassessment of the real property for state property tax purposes.

Transfer Taxes

Local governments often tax sales of real estate within their boundaries. These taxes might be called "documentary transfer taxes," "city transfer taxes," or "documentary fees." But if no money is changing hands—as is the case with most interspousal transfers—no tax should be due.

Most state and local laws specifically exempt transfers of property that are made between spouses or registered domestic partners who are divorcing and dividing property under either a court order or a property settlement agreement. Some counties, cities, or states might require you to note on the deed that the transaction is interspousal and therefore exempt from any transfer taxes. And some county recorders require spouses to fill out a specific transfer tax form or affidavit claiming an exemption. So be sure to contact the local assessor's office to make sure you have all the documentation needed to show that the transaction is exempt.

Reassessment of Real Property

In some states—such as California—the sale of a property triggers a reassessment of its value for purposes of property tax. However, in most circumstances, an interspousal transfer made because of divorce won't trigger the reassessment. Here again, it's best to contact the appropriate recorder's or assessor's office to make sure you have all the documentation needed to show that the transaction is exempt.

What About Income Taxes on Interspousal Transfers?

For purposes of federal income taxes, the Internal Revenue Service doesn't recognize a gain or loss on a transfer of property between spouses, or between former spouses when the transfer is "incident to divorce." (26 U.S.C. § 1041 (2022).) This rule applies regardless of the designation or type of deed used for the transfer—as long as the transfer was related to the couple's divorce or took place within a year after the divorce.

Some states have similar rules exempting interspousal transfers from state income tax. For instance, California tax law provides that interspousal transfers (including those made in connection with a property settlement agreement or a divorce decree) aren't considered a change in ownership. (Cal. Rev. & Tax Code § 63 (2022).)

Why Do Spouses Transfer Property Between Themselves?

Couples might transfer property between themselves using an interspousal transfer deed when:

• they're transferring title of the family home or other property to the spouse who will keep it as part of a settlement agreement or court order in their divorce
• one spouse owned the property separately but wants to add the other spouse to the title
• they want to refinance their home in the name of the spouse who has a better credit rating (to get a better mortgage rate), or
• one spouse must be removed from title for other financial or legal reasons.

If you're in one of these situations and are considering an interspousal transfer, it's a good idea to consult a local attorney before signing any deeds to make sure you fully understand all the potential consequences in your state.

How Does an Interspousal Deed Affect Whether Property Is Separate or Marital?

If spouses transferred property between themselves during their marriage, those interspousal transfers can sometimes lead to later disputes when they're getting divorced. Did they intend for the transfer to change the nature of the property from marital property (or "community" property, in some states) to separate property, or vice versa? (Changing the nature of marital or separate property is called "transmutation" in some states.)

Every state has laws about how spouses hold ownership of property during marriage, and how that property is divided at divorce. In all states, courts assume (presume) that any property acquired during marriage is marital (or community) property. It can be a challenge to change that presumption and prove that the property is not marital.

In many states, transferring one spouse's share in marital real property through an interspousal deed isn't enough to change the asset into separate property. For example, if a husband wants to give his share of the marital home to his wife, making it her separate property, many states' courts have held that it's not enough for the interspousal deed to state "for her use as separate property" (or something similar) to make that change. Instead, a court might decide that the spouses must show they both intended for the nature of the property to change—by having the wife sign the deed as well, or by having a separate written agreement signed by both spouses.

If you're still married and want to change the nature of marital property, you should check your state's laws or talk to a lawyer about how to do that. On the other hand, if you're transferring property as part of your divorce, the court order or settlement agreement will likely specify how and when property should be transferred.

Preparing an Interspousal Deed

Regardless of the type of deed you decide to use for an interspousal transfer, it's important to make sure that the deed is completed and recorded correctly. Errors in drafting or recording can lead a court to declare that the deed—and therefore the transfer—is invalid.

In most states, an interspousal deed must:

• be in writing
• list the spouses involved in the transfer
• identify the property being transferred by address and legal description
• be signed before a notary public, and
• be recorded in the county where the property is located.

Depending on the type of deed you use, your state's laws might also require the deed to include specific language. For example, quitclaim deeds often require a clear statement that the grantor is "quitclaiming" or "quitclaims" the property to the grantee.

You'll also want to check state and local laws regarding any deadlines for recording interspousal deeds. For example, you might have to record a deed within 120 days of signing in order to qualify for a transfer tax exemption.

For more specific information regarding the interspousal transfers in a divorce, please contact a local family law attorney for help.