Answer: Yes. If you are going to try and acquire property or other real estate during divorce, a free trader agreement is a smart idea.
As a Raleigh divorce lawyer for over 15 years, I am often asked about “Free Trader Agreements” or provisions. What are they? Do I need one in my separation and divorce? Often divorce clients come to see me about Free Trader Agreements after they have already entered a separation agreement and property settlement, which sadly may be too late. Let’s review what free trader agreements are, and whether you need one in your divorce or separation.
What is a Free Trader Agreement
A free trader agreement is, in basic terms, a document prepared for the purposes of waiving each party’s rights of inheritance (and all other marital rights referring to a separation agreement in most cases) as to real estate and creating a right to obtain real estate independent of the other prior to divorce. Without a free trader agreement in North Carolina, a party who is legally separated but has not yet divorced their spouse will be unable to acquire or dispose of real estate completely and effectively.
How Banks View Lending During a Couples Divorce
Banks will not lend money to purchase a home, in most cases, without a signed and recorded free trader agreement or a divorce judgment. This is because if you were to pass away (or default) prior to entry of a divorce, you’re estranged spouse may still have enough of a claim on the after-acquired property to really gum up the foreclosure process for the bank and delay or thwart their attempt to foreclose and recover their money from the bad loan.
In practical terms, if you were to approach a bank about buying another home, and the bank determined that you were legally separated but not divorced, they would seek to have your spouse sign certain documents at closing including but not limited to, a deed of trust. This would ensure the banks rights to foreclose on the property in the event of nonpayment.
For most people going through a divorce, asking an estranged spouse to sign a deed of trust and other documents at closing can prove to be problematic.
Why a Free Trader Agreement is Important
If you do not have a recorded, or are able to record a Free Trader Agreement, this can be very problematic as North Carolina requires a waiting period of 12 months from the date of separation until a party may file for divorce. Any plans to purchase, sell or refinance real estate may be put on on hold until the 12-month waiting period is over. Even after parties that have legally separated and remain separated for 12 months, it can take an additional two or three months to obtain the actual divorce judgment.
Many of my clients need to either acquire or transfer real estate after their separation and prior to entry of a divorce judgment. As a Raleigh divorce attorney, I practice within a volatile real estate market. So much can change in a short period of time and being forced to wait can be very damaging.
North Carolina and Free Trader Provisions
Most North Carolina divorce law firms include some standard “free trader” provisions in their Separation Agreement and Property Settlement Agreements. If drafted correctly and properly executed, these provisions may be completely enforceable, however without a separate record-able document containing a Free Trader Agreement you will be forced to record your entire separation and agreement and property settlement with the local register of deeds.
This may not seem like a big deal, however recording costs can be rather high for a long document, and more importantly it is not advisable for most people to have their personal life exposed like that for all the world to see into posterity. Anyone and everyone could access your entire separation agreement if the whole document is recorded.
Use a Memorandum of Separation to Avoid Delays
These are just some of the reasons why I counsel many of my Raleigh clients to include the preparation and execution of what we call a “Memorandum of Separation” within a clear Free Trader Agreement. This document is prepared in a format appropriate to record with the local county Register of Deeds.
The Memorandum of Separation only refers to the fact that the parties have resolved all marital claims by Separation Agreement, and then provides a full and complete Free Trader Provision.
Even for client’s who will not likely need to transfer or purchase real estate during their separation period, we can include provisions within the Separation Agreement and Property Settlement which binds the parties to later sign a record-able Free Trader Agreement (and memorandum of Separation) at the request of either party. This way I can protect my family law clients if they unexpectedly deal with real estate issues prior to divorce.
Speak to an Experienced Raleigh Divorce Lawyer
If you are unsure whether or not you will be purchasing property after your separation and prior to your divorce, please make make sure you talk with an experience Raleigh divorce lawyer to discuss the matter prior to entering into any divorce settlement or Separation Agreement and Property Settlement. Call 919-301-8843 to speak to a family law specialist or visit us at our Raleigh law office!
By: Glenn Doyle
Raleigh Divorce Laywer
The Doyle Law Group, P.A.
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