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Should you agree to a marital lien in your Minnesota divorce settlement?

For years, marital liens against the value of the couple's primary residence were a common sight in property settlements in divorce. Also referred to as homestead liens, spousal liens or equitable liens, divorce lawyers in Minnesota often encouraged their clients to accept the lien based on the ever-increasing value of the property, particularly in the Twin Cities metropolitan area.

What is a marital lien?

Under Minnesota's no-fault marital property laws, all property, financial assets and debt accumulated over the course of the marriage is subject to valuation and equitable distribution between the spouses. Equity in the family home, however, is often among the couple's most valuable assets and, therefore, skews the valuation numbers heavily in favor of the party who receives title. This is particularly the case if the mortgage has been paid in full. In short, if one party receives title to the house, the other party might argue that all other assets could equal the current and future equity. 

It's the future equity that becomes the issue 

In addition, throughout the '80s, 90s and early 00s, house values in some areas of Minnesota often rose at a hefty 7 percent or more per year. The party receiving title to the house stood to gain signficantly when eventually selling. 

As a means of leveling the valuation playing field and avoid making the parties sell the house, marital liens were devised as a means to make sure that both parties benefited from the increasing equity in the the home. With a Minnesota spousal lien in place, the non-titled party could consider the proceeds from the eventual house sale as part of the equitable property settlement. (In most cases, there is a statute of limitations of 15 years written into the agreement.)

Then came the Great Recession

However, spousal liens in Minnesota fell out of favor among Minnesota divorce attorneys and family law judges when the housing bubble burst in 2008. Suddenly, divorced spouses who had received the house (and mortgage) as part of the settlement were losing jobs and forfeiting the house to bank foreclosure. Non-titled spouses began seeing their original "equitable" distribution suddenly become far less than equitable. Attorneys representing clients in divorce in Minnesota began advising against marital liens as part of the property settlement.

They're back

Now that housing values in the Twin Cities and across Minnesota are beginning to rebound, equitable liens are making a comeback. Experienced divorce lawyers in Minnesota have learned their lessons after seeing their clients take financial hits over the past several years. There are now specifics clauses and considerations that should be included to protect their clients' rights if a marital lien is going to be included in the settlement.

When talking to your lawyer about your Minnesota property settlement, make sure you discuss - and fully understand - whether an equitable lien against the future value of your home is worth considering as part of your fair and equitable distribution of marital property.

 

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Law Firm, P.A.

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