“Marital Liens May Have Limitations If Home Equity Vanishes”

Christopher Pham and Michael Boulette wrote a very insightful article in a recent publication of Bench and Bar of Minnesota (link below) that outlines the limitations on Marital Liens when a volatile market destroys home equity, as is the case with the last five years.

(Article Link)  http://mnbenchbar.com/2013/07/lien-in/

If you are dealing with a divorce, your house may become the focus of a property division.  You or your spouse may need to take a lien interest in a property while one of you is awarded the property to live in. Marital liens (or homestead liens, equitable liens, or spousal liens) award property, payable at a later date, upon sale of the home, or to ensure child support or spousal maintenance payments.

In short, the article outlines what Minnesota courts suggest as five items all marital liens should address:

1. The value of the debt the lien addresses (either by specific amount or percentage or the value of the equity or sale price),
2. The applicable interest rate to apply when the lien is satisfied,
3. A date of maturity that is ascertainable,
4. The method(s) of enforcement, and
5. The nature of the lien (child support/spousal maintenance, or division of property)

The article goes on to highlight the problems of items 2 (interest rates) and 4 (methods of enforcement), and makes suggestions to legal professionals on how to avoid ambiguous drafting and, therefore, the likelihood of disputes. For those who rely on attorneys to assist them in their property division settlements, it will help to understand the nature of the ambiguity and how your attorney can assist you in securing an unambiguous marital lien that will stand up to market volatility in the future.

Interest Rates  In short, the settlement should not remain silent on what interest rate should apply to a lien.  Statutory interest rates of 10 percent would likely apply if the parties to a divorce do not stipulate otherwise.  Since as a result of the Great Recession, interest rates are now around 4 percent, this would be an unfortunate burden to bear. Make sure you understand how this issue will be addressed in your settlement.

Method of Enforcement   Again, in short, the method(s) of enforcing the marital lien should also be addressed in your settlement. Silence on the subject may permit enforcement by foreclosure. But, a marital lien holder may be out of luck if the property is lost to foreclosure and the settlement’s silence offers no alternatives for enforcing the lien.

If you are dealing with a divorce settlement that includes a marital lien on your property, the future is difficult to predict. Make sure you understand how your attorney might address these issues.  Spending a little time educating yourself on this topic will allow you to work more effectively with your attorney to resolve these issues.

ALL READERS:  This blog is not, nor shall it be deemed to be, legal advice or counsel. This blog does not create an attorney-client relationship with any reader.  It is designed to encourage thoughtful consideration of important legal issues with the expectation that readers will seek professional advice from a licensed attorney.