Divorcing couples who own a home still remain homeowners, even after the divorce; they just aren’t joint owners any longer. Instead, they own the home as individuals who each have a one-half ownership interest in the house. This difference may seem obscure but, can be important. For instance, a married homeowner receives the entire house if one spouse dies. If they become divorced, and then one of them dies, the survivor does not get the other’s half. A surviving divorced spouse only keeps his/her half.
Just like property, debt also becomes part of the marriage, even if the debt is owed by only one spouse. This becomes a little more complicated when a debt is reduced to judgment. A judgment is a way of allowing a ‘judgment creditor’ to recover property from someone who owes a debt; also known as a ‘judgment debtor’. Judgments are granted by the court, and, can allow for a judgment creditor to recover real property, like a house.
Minnesota law allows a homeowner to keep the house from being taken by a judgment creditor; provided the judgment debtor, or a family member of the judgment debtor, is living in the house. This protection is known as the ‘homestead exemption’, allowed under Minn. Stat. §510.01.
When homeowners become divorced, and are no longer ‘family’ for purposes of claiming the homestead exemption; the ability of a former spouse to use the homestead exemption becomes an issue. Can a former spouse of judgment debtor claim the homestead exemption to protect the property from a creditors’ claim?
It can, and has, happened, where a judgment creditor has tried to recover a debt by taking the home, when the person living in the house is no longer the ‘spouse’ of the judgment debtor.
The case in question involved a divorce where the couple decided to become divorced early on in the divorce process, then divide property later, as part of the final divorce decree. It is not uncommon to pursue a divorce this way. Courts will allow it using a process called a ‘bifurcation’. In a bifurcation, the parties’ marriage is dissolved, but, a final decision about the award of the homestead, and other property, is made later.
In the interim between the granting of the divorce and the final property award, a judgment creditor argued that the former spouse was no longer a ‘family member’ and therefore lost the right to claim the homestead exemption.
The Court disagreed, and instead concluded that it would create a ‘disincentive’ for parties going through a divorce, from otherwise reaching an agreement if it meant losing protection from judgment creditors.
Thankfully, for parties to a divorce, the right to claim a homestead as exempt from creditors’ claims, survives the dissolution of the marriage, even if the homestead hasn’t been awarded to either spouse yet.
A divorce can affect your property rights, including your protection from creditor’s claims. Please be sure to seek legal advice if you have questions about the risk of creditors’ claims in your divorce.
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