Quitclaim Deeds, Divorce Decrees: Homestead Exemptions for Transferred Marital Property Across “Tenancy by the Entirety” and “Community Property” Jurisdictions

(Excerpt) The quit claim deed is an instrument that transfers a property interest from a grantor to a grantee, without making any other representations. Quit claim deeds are common among spouses and divorcing couples as concerns regarding title defects are mitigated. These transfers have resulted in bankruptcy cases where a recipient-spouse receives a property interest encumbered by a lien, and tries to evade liability. A debtor can attempt to avoid a lien through an exemption. Exemptions are statutory provisions which can protect qualified property in a bankruptcy action. Section 522 of Title 11 of the United States Code (the “Bankruptcy Code”) governs these exemptions. The “Homestead Exemption” provides that the debtor may avoid qualifying judicial liens against their encumbered residential property, up to a certain amount. The Bankruptcy Code permits states to “opt out” of the federal bankruptcy exemptions and develop their own exemptions by statute, including the Homestead Exemption. State statute also determines the legal rules regarding jointly owned marital property. Two common doctrines of jointly owned marital property are tenancy by the entirety and community property, recognized in twenty-five states and nine states, respectively. There is a popular perception that a tenancy by the entirety offers a spouse greater protection of their shared assets than joint ownership under other property doctrines, including community property. Part I of this memorandum explains the basic legal principles underlying quit claim transfers of encumbered real property where the recipient spouse enters bankruptcy, using In re Brinskele as an example. Part II examines a similar line of cases, in both tenancy by the entirety and community property jurisdictions, where the debtor or trustee moved to avoid a lien through the Homestead Exemption. The memorandum concludes examining the patterns and differences, if any, between these cases by jurisdiction