Don't Sign Over Title Until Your Name's Off the Mortgage

Ilyce Glink

Q: Here's my scenario: The deed is in my name, and the mortgage is presently in both my name and my husband's names. We are planning to divorce, and my husband wants to keep house. He plans to refinance the mortgage into his name only, which is OK with me as long as I am protected.

What happens if he decides to sell the house or dies and I am still holding the deed? And what happens if I die or want to stop holding deed? The divorce will be friendly, I think.

A: Let's see: You own the house alone and you and he are on the mortgage. Did you own the property before you married him but refinance jointly? Was the home put into your name to protect it from any creditors coming after your husband? Was the house in your name because your credit was better than his?

If you are trying to determine what is fair when it comes to the distribution of all of the assets accumulated during your marriage, you might need an attorney to guide you. If you have already come up with a plan and are both comfortable with it, you will need to make sure that you don't transfer your ownership in the home to him unless he refinances the home. You don't want to lose control of the ownership in the home and still be on the hook for the mortgage.

If, as part of the divorce settlement, he wants to buy the house from you, then you should come up with a price, and he should pay you that money as part of the divorce proceedings. Then, at the refinance, you'll deed the property to him. Then, you'll have your cash and be done with the home and the divorce can be finalized.

For both of you to determine what works, you need to understand what your assets are worth and what liabilities you each have. If your home has equity -- that is, if you owe less on the home than what it's worth -- you may want to spit that equity between the two of you. Or you could end up with other assets and he can keep the home.

Here's one way you could split the assets when your soon-to-be-ex-spouse refinances: Let's say you and your husband have a mortgage for $100,000 and the property is worth $200,000. If you sell today, you'd each have $50,000, minus the costs of selling (which could include a broker's commission and other transfer costs).

He could write you a check for $40,000 or $45,000 (your share of the equity in the home minus your share of the costs from what it would have cost you to sell the home) and you would sign over the property at the title company when he refinances the mortgage into his own name.

You need to have all of this in writing, so be sure to hire a good real estate attorney who can make sure you're protected.

Q: Ilyce, I have a question. Promise me you won't laugh at it!

There is a coffee shop in a popular summer tourist destination that I'd love to buy. It's a seasonal business but generates enough revenue to make a living year round.

My question is, how do I buy this business and how do I protect myself? I want to buy the business but not handle the daily operations. I was thinking I could buy an interest in the business and the property, and the current owner would continue to run the shop on a daily basis.

A: Wow! The coffee must really be something at this place. My first thought is, wouldn't it just be cheaper to buy an annual pass entitling you to free daily coffee?

I think you need to slow down and answer some very important questions before you whip out your checkbook: How much revenue does this business really generate? What's a "year round" living? Does the business own or rent the property? Would ownership of the property be included in the purchase price?

Typically, when you buy a business, you pay some sort of multiple of the net profits the business generates. For example, let's say gross revenues from this coffee shop are $1 million per year. (I'm just guessing. This business may have revenues significantly lower than that.)

After you subtract the costs for your rent (or mortgage, taxes and insurance), maintenance and upkeep, salaries, and the cost of food, coffee and so forth, let's say you have $200,000 in net profits, or what the owner takes from the business. Let's assume you can get an accountant to look at the books and certify that these are the net proceeds from the last five years (so you're looking at good and bad years.)

Based on the actual numbers, you can construct an offer that might make sense for the current owner. You might offer a multiple on the current net profits.

The best way to start these conversations is to invite the owner out for a drink (coffee or otherwise) to get to know each other and ask if he or she has ever thought about selling and what kind of a price did the owner have in mind? Perhaps the owner is elderly or tired of running a business.

Maybe he or she owns the property and would sell you the business but not the land. Or perhaps the owner would want to sell you the land and just rent for a period of years. That would be a good way to cash out a portion of the business without letting it go.

If that's the case, you'd want to structure a long-term lease that would guarantee the income for a period of time for the owner. I'd also want to pay out the fee over a number of years.

Buying a business can be rather complicated. And while many people believe they can run a business and make it work, they often find it difficult to make as much money as they thought they would.

For this reason alone, you need to have a good understanding of what the business can bring in and what your costs will be.

If you want to buy a restaurant or other food establishment, you have to see if the shop has a long track record and what that track record is. The person who currently owns it might only get $50,000 out of the business a year, and never takes time off, but loves it. Meanwhile, you might not wish to become a slave to the business for that amount of money.

If you really want to pursue this, you'll need a great attorney who can help you think it through, help you do the due diligence, protect you and help with the paperwork.

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