Divorce Dex.com: Hypothecate

Definition Hypothecate - to pledge property as collateral in security for a debt or obligation.

Application in Divorce Marital settlements may involve the hypothecation of property, as in the case when one spouse buys out the marital home of the other with a collateralized promissory note.

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One Spouse Buying out the Marital Home
In divorce actions, the most common hypothecation of assets is the marital home. In this, one spouse buys out the other using a property settlement note. One spouse pays the other a sum for a negotiated length of time at current interest rates. Since the money is a division of property, it is not taxable. The recipient does pay taxes on the interest, not the principal. The note is normally collateralized by the home. Generally, the lender -- the spouse receiving the payment -- is not given title to the property.

Contributed on 7/5/2007 by: DivorceDex.com Staff
Category: Tax Consequences (Applicable in All States)

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