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Co-Owner's Debt May Hurt Homeowner

Ask the Real Estate Lawyer: Real Estate Law Q&A

REM #LAW624

By Ilyce R. Glink and Samuel J. Tamkin

Summary: A homeowner is concerned about thier partners debt. Because they are not married, the co-owner is not responsible for the debt but their equity in the home may be at risk.

Q: My best friend recently purchased a home with her boyfriend. In that same week he was diagnosed with terminal cancer. The house was paid for in cash, and both names are on the deed.
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But his medical expenses are growing and he now has a significant amount of debt. My best friend has no debt. Can her boyfriend quit claim deed the house to her so she would not be responsible for any of his financial debt after his death?

How much time has to pass so that his creditors can’t come after her? Can the transfer of the property be immediate?

A: First, when two people are not married, they are not responsible for each other’s debts. So, your best friend wouldn’t have to pay off her boyfriend’s medical debts.

That said, if the boyfriend transfers the house to your friend and then he or his estate declares bankruptcy or a creditor pursues an action to recover assets that may have been transferred fraudulently, his equity in the house that was transferred to your friend could put your friend in a difficult situation.

In some cases transfers of assets within ninety days or within one year of filing for bankruptcy will cause a problem to both the debtor and the recipient of the asset. In other cases, a court might look at a transfer of assets that occurred within the last 3 to 5 years.

The process of preparing a deed is simple. Once the deed has been filed at the local recorder of deeds or registrar of titles office, the world has notice of the transfer of title from one person to another.

In some counties, the county records may take a couple of weeks to become updated but the effective date of the recording would remain the date the documents were delivered to the office in charge of recording documents.

While your best friend will not likely be responsible for any of the debts of her boyfriend, the equity that your friend’s boyfriend has in the house may be at risk. You didn’t indicate whose money was used to buy the home. If your friend used all the money to buy the home, the transfer of title from the boyfriend to your friend might be proper and might protect the house.

If they both bought the house and both paid in the same amount of money, the boyfriend’s share of the house may be at risk. The boyfriend’s creditors will look to any assets the boyfriend may have when the bills come due. That asset is the house along with any other bank accounts, stocks or anything else owned by the boyfriend.

Your friend should sit down with an experienced estate planning attorney to discuss these issues further. The estate planner can make sure that your friend and the boyfriend both have wills. In addition, they should have a power of attorney for health care issues and financial issues to help them out if either becomes totally incapacitated and medical or financial decisions need to be made.

As part of this discussion, the estate planner will help determine how to best protect the equity your friend and her boyfriend have in the property, perhaps through the creation of a living trust.

Samuel J. Tamkin is a Chicago-based real estate attorney. Ilyce R. Glink’s latest book is 50 Simple Steps You Can Take To Sell Your Home Faster and For More Money In Any Market. If you have questions for them, write: Real Estate Matters Syndicate, PO Box 366, Glencoe, IL 60022 or contact them through Ilyce’s website www.thinkglink.com