Securing Liens on Personal Property – Part II
If you remember from our previous blog, a judge who has ordered you to pay your spouse a large amount of money that you cannot immediately pay can require that you put some of the personal property you still own on the line to collateralize the judgement. This is called securing liens, and it is a common method used in ensuring a just and right division of marital property between divorcing spouses.
If the property is your home, for example, you cannot sell or refinance without first paying the debt in full. When you do, the lien – or legal claim – is removed. If you default on the payments, the property can be seized. It’s that simple.
I mentioned a home being a common example, but really any personal property can be up for grabs in this process. Today’s blog will discuss how a security interest is created, and how that affects different types of personal property.
Creating A Security Interest
The most common way to create a security interest in the debtor spouse’s personal property is to create a promissory note. The promissory note is a legal agreement between you (the debtor spouse) and your spouse (creditor spouse) that details out the specific parties involved, the amount owed, and the payment terms. It should also:
- Describe the collateral in detail
- Specifically state that the creditor spouse has a security interest in the collateral
- State that the debtor spouse has received value in exchange for the note
- Be signed before a notary public
The security on the property should then be perfected, which essentially means that your spouse now has priority over any current and future unsecured creditors and later-perfected secured creditors. In other words, the money owed to your spouse should be handled first, before any other creditors are paid.
So how does this affect different types of property?
For most forms of personal property, the creditor spouse should file a separate UCC-1 financing statement. This should be signed by the debtor spouse and detail out the legal names and addresses for both spouses and a statement describing the collateral. Below is a brief description for other property types.
- If the property has a certificate of title attached to it, such as in the case of a car or boat, the security interest is perfected by recording the security interest on the certificate of title itself.
- If the property is money or certificated securities, security interests must be perfected by the creditor spouse taking possession of the collateral. The same can be said in the case of a checking or savings account, though in this case, the creditor spouse assumes complete control over the deposit account.
We hope this blog was helpful. Please don’t hesitate to check our blog archive for more information on this topic or any others that might interest you. If you would like us to discuss a particular family law topic in these blogs, please contact our Nelson Law Group, P.C. office to let us know. We love hearing suggestions from our loyal readers.