Suppose you agree your spouse can keep the house if your spouse pays you cash for your community property share. However, your spouse makes it clear he does not want to pay you before the date of divorce because he wants the security of knowing the judge has signed the divorce decree awarding 100% of the house to him before he pays you the money. This makes sense for the spouse who is buying out your community interest and paying you. But, it creates a risk for you if for any reason your now ex-spouse does not or cannot pay the money after the judge has finalized the divorce.
To protect a spouse who is owed money that is to be paid on the date of divorce after the judge signs the divorce decree, it is common practice for lawyers to write into the divorce decree (and into a mediated settlement agreement) that there will be a judgment against the ex-spouse for the amount of the money owed, along with a lien placed on the property to secure the payment. Lawyers will also provide a right of the receiving spouse to foreclose on the property and take possession back from the ex-spouse if the ex-spouse fails to follow through on payment. What that means is if the paying spouse doesn’t pay, then the receiving spouse already has a judgment for the money against the paying spouse, and the receiving spouse has a right to take back the property, and sell it to get the money.
You may say, okay, that sounds like good protection for each of us. However, keep in mind there is a price to pay for that protection.
All those legal things cost money. The judgment, and the lien, and the right to take the property back for payment – these require special provisions in the decree and extra documents that the spouses must sign and file in the county records to let a potential purchaser of the property know that the unpaid spouse has a claim against it. It really takes the assistance of a professional to do these tasks correctly and in a timely manner.
Obviously, if the paying spouse doesn’t pay as planned then the protections in the decree and the extra documents and filings were worth paying for. However it isn’t over. The spouse who did not receive the money still needs to enforce the protections, take back the property, and sell it. That also requires the help of a lawyer and adds cost, delay, and hassle.
In the meantime, the payer spouse takes a hit to his/her credit rating, and for both of them, the lien against the property may make it much harder to sell it. If the property sells, the receiving spouse will get paid, but only if there is enough money left after loans against the property, mechanics’ and tax liens, and other debts have been paid. So a spouse who agrees to be paid after the date of divorce needs to make sure the lien is ordered against a property that is worth enough money to cover all the debts against it and the money owed to the spouse. This can create significant conflict which can be especially damaging to former spouses’ relationship and make it difficult to cooperate to co-parent children in the future. Children who are old enough to recognize that the parent violated a court order and an agreement to pay the other parent may resent that parent for a long time to come.
If this is the only way spouses can do it, then so be it. However, there are some other options to consider in advance:
1. For money that is to be paid on the date of divorce, the paying spouse can bring a cashier’s check made out to the receiving spouse to the hearing (called a “prove up” in Texas) where the judge will sign the decree to end the marriage. The spouses need to sign the decree before the judge will sign it. At the beginning of the prove-up the paying spouse can say in court on the record, “Here in court I am tendering this check to my spouse made out to him/her in the amount of $___.” Then the receiving spouse can say in court on the record, “I acknowledge receipt here in court of the check made out to me in the amount of $___”. That takes cares of it.
What if the paying spouse does not bring a check or won’t give it over? The receiving spouse can refuse to continue with the prove-up … so no divorce. Then each spouse will need to hire lawyers and fight it out. Maybe there will be money left to pay the receiving spouse after all of that, maybe not. What would happen if they have to sell the property just to pay the lawyers?
2. Or the spouses can agree to meet together with the lawyers or mediator before the prove up. The paying spouse can sign the decree first and when s/he gives the cashier’s check to the receiving spouse, then the receiving spouse can sign the decree and acknowledge in writing the receipt of the money. Then there is no transaction to be done after the prove-up and the ex-spouses can move on without being tied together financially.
3. Or, the spouses and a lawyer or mediator can sign an escrow agreement that the lawyer or mediator will safe-keep the payer’s cashier’s check and give it to the receiving spouse once the judge signs the divorce decree and the prove-up is completed.
The last two ways comfort the paying spouse by ensuring the receiving spouse’s cooperation in getting the divorce finalized. The receiving spouse knows the money is there and is incentivized to move the divorce forward more quickly to get the money in hand.
In summary, it is important for you to write protections like judgments and liens into your divorce decree if your ex-spouse does not pay the money s/he owes you after divorce. But if you can meet together and the paying spouse coordinates giving the check to you or to your lawyer or mediator in exchange for your signature on the decree or the judge’s signature, then you may be able to meet each of your needs without the additional cost and downsides of judgments and liens.