Divorced Wife Off Deed, Still on Mortgage, Ex-husband on Both. Who Can Claim Mortgage Interest on 1040?

Atty. Carr’s avvo.com response was marked as “helpful” by  the Asker:

Levittown, PA
Practice area: Real Estate

Q: For a friend: Ex-wife is on mortgage, but signed a quit claim deed a few years ago when the house was in the beginning stages of foreclosure. After bankruptcy, the bank worked out a deal with him and house was saved. However, the bank left his ex-wife on the mortgage note. She has not lived in the house for about 4 years and has never contributed to any of the house payments, before or after the divorce proceedings began. Our understanding is that she has no claim to the house, but is still responsible for the mortgage. She even gets bank statements regarding the payments and mortgage interest. This should mean that she cannot claim the mortgage interest on her taxes, correct? What proof would she have to present when she files?

Atty. Carr’s response:

If the QC deed were duly recorded it would remove her legal interest in the property. The fact that she was left on the mortgage, affects only the mortgage. The lender is not likely to remove her as its obligee even though the private agreement between the twoex’s may require him to make the payments and not her. As a matter of fact and law, she still has a requirement to make payments on the home while having no remaining legal interest in the property. (This is a frequent result in divorce.) Whomever makes the payments is the one legally entitled to the deduction. However, the lender is obligated by law to send her a 1099 because she is still on the mortgage which she could conceivably attach to her return and claim the deduction. The IRS has special rules when two people claim the same deduction.. If later audited by the Service, they could ask for cancelled checks to show she actually made the payments and she would then lose it.

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Death & Divorce and Their Disparate Effect on Marital Distribution in Pennsylvania

By Christopher C. Carr, Esq. Chester County bankruptcy attorney.

A stark contrast exists in the law of Pennsylvania as between the effects of death and divorce upon marital property distribution.  In the case of divorce, the marital assets, including assets nominally titled in the name of one spouse alone but purchased with marital assets, are subject to equitable distribution (ED) as between the spouses. In the case of and by virtue of death however, the deceased spouse (or more precisely, his or her estate) loses all rights in all property held in the name of husband and wife or otherwise subject to ED unless accruing to the estate under some other law. This is because there ceases to be any counterparty in the divorce action, which as an action in equity can then no longer proceed.  With few exceptions, summarized below, the surviving spouse takes all.

      However, there is a new exception to this death/divorce disparity which was entered into the Pennsylvania statutes in 2005. Recognizing that this had  produced some highly inequitable results, the Pennsylvania General Assembly sought to remedy this when Divorce Code amendments were considered. Section 3323(d.1) was added to the Divorce Code providing that where divorce grounds have been established by the date of death of the spouse, the divorce action may proceed with the executor for the decedent being substituted as a party for the decedent. To establish grounds the following rules are set forth by the statute: a)      If a fault divorce was pending the Court needs to have found that divorce grounds are established, b)     If both parties consented to the divorce, grounds are established, or, c)      Lastly in the no fault case, if an affidavit of two year separation was filed without contest or the court found two years of separation to have elapsed and the marriage was irretrievably broken, grounds are again said to be “proven”. Where grounds are not established as of the date of death, the old rules apply. The divorce ends and each party resorts to those rights created by federal laws like ERISA, the rights of joint owners to the decedent’s interests and the rights to take against the will under the Probate Code. Taper v. Taper, 939 A.2d 969,973 (Pa. S. 2007.) COMMENT:   As our population ages, one can envision this becoming a problem of epidemic proportions. There are obviously many situations which will not fall within the aegis of the 2005 amendment and appear left to chance. One obvious example would be a fault based divorce where no court decree finding grounds for the divorce has been entered as of the date of death. This writer suggests that thePennsylvania legislature will need to take more decisive action, terminating the inequitable operation of the old rules entirely under circumstances where it can be proven that the divorcing spouse knew or should have known of the dire health status of the other spouse as of the date of the divorce petition.

Law Offices of Christopher C. Carr, MBA,  P.C., is a quality bankruptcy and debt relief practice, located in  Valley Township, west of Coatesville, Pennsylvania, where Attorney Christopher Carr, a Chester County bankruptcy attorney, who has over 30 years if diversified ;egal experience, concentrates on serving the residents of and businesses located within Western Chester County and Eastern Lancaster County, Pennsylvania, including the communities in and around Atglen, Bird in Hand, Caln, Christiana, Coatesville, Downingtown, Eagle, Exton, Fallowfield Gap, Honeybrook, Lancaster, Lincoln University, Modena, New Holland, Parkesburg, Paradise, Ronks, Sadsbury, Thorndale, Valley Township, Wagontown & West Chester,  Pennsylvania. If you reside or do business in the area and need assistance with a legal issue, please call Mr. Carr at (610)380-7969 or write him at cccarresq@aol.com today!  


©Christopher C. Carr, Attorney at Law 2009, 2013, All Rights Reserved

The “A” in Bankruptcy Alphabet is for “Alimony”

By Christopher C. Carr, Esq., Chester County Bankruptcy Lawyer

One of the most disturbing changes in the Bankruptcy Code* enacted by Congress in 2005 for persons getting divorces and contracting marital debts is Section 523 (a)  which states in effect that an alimony, support or maintenance  obligation to an ex-spouse cannot be discharged in bankruptcy, but must be paid in full, with two limited exceptions:

  1. If a divorce decree specifies that an obligation to a spouse is alimony, but the obligation is not actually in the nature of alimony, then the obligation can be discharged in bankruptcy.

For example, Joe Dentist and Mary Dentist enter into a divorce decree which states that Joe Dentist is to pay a marital debt to The Joe Dentist and Mary Dentist Professional Corporation, where both practice dentistry, and further specifies that the husband’s payment of the debt shall be treated as alimony.  Joe Dentist may nonetheless be able to have this debt discharged in bankruptcy even though the divorce decree indicates that the payment of the debt is “alimony”, because such payments can be characterized as a capital contribution to the Professional Corporation and not as alimony.

2. Also, an ex-spouse may be able to discharge an alimony obligation if it has been assigned to a third party.

For example, suppose John and Mary Jones divorce. John Jones is ordered to pay Mary Jones alimony of $1,500.00 per month. John does not pay the alimony and Mary, who needs the money, assigns the right to collect alimony to her brother, Crusher Jones, who owns a profitable Junk Yard and feels the urge to pummel John. Crusher now gives Mary the $1,500.00 each and every month. Crusher now owns the right to collect the alimony from John. But John can escape the debt (if not the pummeling).  The alimony obligation can be discharged under Section 523 since it has been voluntarily assigned by Mary.

*The United States Bankruptcy Code (Title 11 of the United States Code) states in Section 523 that:

(a) A discharge under Section 727, 1141, 1228(a), 1228(b), or 1328(b) of this title does not discharge an individual debtor from any debt . . . (5) to a spouse, former spouse, or child of the debtor, for alimony to, maintenance for, or support of such spouse or child, in connection with a separation agreement, divorce decree or other order of a court of record, determination made in accordance with State or territorial law by a governmental unit, or property settlement agreement, but not to the extent that (A) such debt is assigned to another entity, voluntarily, by operation of law, or otherwise (other than debts assigned pursuant to § 402(a)(26) of the Social Security Act, or any such debt which has been assigned to the Federal Government or to a State or any political subdivision of such State); or

(B) such debt includes a liability designation as alimony, maintenance, or support, unless such liability is actually in the nature of alimony, maintenance or support . . . .

(enphasis added).

Law Offices of Christopher C. Carr, MBA,  P.C., is a quality bankruptcy and debt relief practice, located in  Valley Township, west of Coatesville, Pennsylvania, where Attorney Christopher Carr, a Chester County bankruptcy attorney, who has over 30 years if diversified ;egal experience, concentrates on serving the residents of and businesses located within Western Chester County and Eastern Lancaster County, Pennsylvania, including the communities in and around Atglen, Bird in Hand, Caln, Christiana, Coatesville, Downingtown, Eagle, Exton, Fallowfield Gap, Honeybrook, Lancaster, Lincoln University, Modena, New Holland, Parkesburg, Paradise, Ronks, Sadsbury, Thorndale, Valley Township, Wagontown & West Chester,  Pennsylvania. If you reside or do business in the area and need assistance with a legal issue, please call Mr. Carr at (610)380-7969 or write him at cccarresq@aol.com today!  

I also provide Mortgage Mod Services .

©Christopher C. Carr, Attorney at Law, 2011, All Rights Reserved

For other articles on the letter A in the bankruptcy alphabet series, click here.

Other attorneys playing their “Bankruptcy A Game” include:

A is for Contract Assumption

A is for Adversary Proceeding

A is for Assets

A is for Assets

A is for Assumption

A is for Assumptions

A is for Attorney

A is for Automatic Stay

A is for Automatic Stay

A is for Automobiles

A is for Avoidance of Preferential Transfers  

A is for Avoidance

Law Offices of Christopher C. Carr, MBA,  P.C., is a quality Chester County Bankruptcy Practice, located in  Valley Township, west of Coatesville, Pennsylvania, where Attorney Carr, who has over 30 years if diversified experience as an attorney, concentrates his practice on serving the residents of and businesses located within Western Chester County and Eastern Lancaster County, Pennsylvania, including the communities in and around Atglen, Bird in Hand, Caln, Christiana, Coatesville, Downingtown, Eagle, Exton, Fallowfield Gap, Honeybrook, Lancaster, Lincoln University, Modena, New Holland, Parkesburg, Paradise, Ronks, Sadsbury, Thorndale, Valley Township, Wagontown & West Chester,  Pennsylvania. If you reside or do business in the area and need assistance with a legal issue, please call Mr. Carr at (610)380-7969 or write him at cccarresq@aol.com today!

I also provide Debt Settlement; IRS Tax Settlement & Mortgage Mod Services NATIONALLY.

Photo Credit: Too Far North