The Quit Claim Deed
When David and I consulted a financial advisor in preparation for starting a family, we started our journey into the unknown world of money.
Buy a house,” the advisor said.
“We don’t have enough income to qualify for a mortgage,” we said.
“Pay cash for it.” he countered.
This was a completely new idea. I had a small inheritance, a trust that had passed to me when my father died.
The advisor added, “It will be a good investment and it will reduce your expenses. You’ll have to pay property taxes, but they’re a lot less than rent.”
We were listening.
He added, “Are you sure this is where you want to live?”
“Yes!” we chorused.
So that was that. Except for a couple of details.
When I contacted the trust manager to ask that some stocks be sold, he suggested that—in order to reduce taxes– we split the sale between two calendar years. But I said, “No, let’s sell it now. “I don’t want to take any chance that the price will go down.” The manager didn’t think there was much danger of a big price fluctuation; he thought that the price would actually go up after the first of the year. I didn’t want to take any chances, though. Buying this house was a Big Deal and I would have been a nervous wreck if I’d had to wait for the money.
So we sold all of the stock in December and bought the house in January. And in January an amazing thing happened: Congress passed a law that reduced tax rates on the sale of investments. They made the law retroactive to the previous year, which was extremely unusual, almost unheard of. This made me feel awesome about following my own lights.
But then a legal issue came up. Our financial advisor suggested that— since we were not using income to buy the house, but money that I had inherited, and also because we lived in a community property state—we should avoid the “co-mingling” of monies. In other words we needed to document that the initial investment in the house was money that I had inherited, that had been mine before the marriage. He said that this document (a “Quit Claim Deed”) would state that David had no legal claim to that money. If, later, we invested earned income in the house, those additional funds would be classified as joint property.
This was new territory for both of us. The accountant said that this was an important tax issue if we got divorced, or if David died. If the amount and source of the initial investment were not specified and we got divorced, the entire value of the house would be classified as community property and I would lose half of the money I invested. In the case of David’s death, I would be taxed on the money that had already been taxed when I inherited it. Although we had separated for a few months, we had talked through a pretty big issue (having a family and pursuing a life style to support that.) We both felt much more grounded than we had before making that decision. So neither of us thought we would divorce. But in California the divorce rate was one in two, and challenges can come up. Our decision to be married seemed pretty committed, though. In the case of a death, we didn’t plan on that either. But it does happen, even to young people. So this annoying legal issue seemed important as a protection.
For me, the Quit Claim Deed was like an umbrella you bring to make sure it doesn’t rain. For David, though, it was a lot more than that; it really hurt his feelings. I knew that David would never try to take advantage of me, but it could happen by default. So I insisted on the Quit Claim Deed. I needed to keep my rights to my own money.
Now that we are a lot older and have been married a long time, David says,
“When we were buying the house I didn’t understand your insistence on the Quit Claim Deed. It made me feel like you didn’t trust me. That was very upsetting. Now, though, I can see why it was important. “
It was hard for me too, to stand my ground with the Quit Claim Deed when the “good” thing to do was to share everything without concern for financial what if’s.
In the story of our marriage there’s more about money and owning that house, more about our adventures with money. ..to be continued…
Copyright 2016 Carolyn Kahlke. All Rights Reserved.