As the saying goes, there's no place like home. Your home is your castle. Your sanctuary. It's the one place on Earth where you can go to relax, rest, and feel safe. It's not surprising then how devastated you may feel if facing the prospect of having to move from or sell your home. Yes, home is where the heart is. But in a divorce, beyond the genuine emotional attachment, the community home is often a divorcing couple's single most significant financial asset.
This post addresses the legal issues surrounding the disposition of a marital home upon divorce. It's not exhaustive, but it will hopefully give some insight into the law regarding the division of a marital home and answer the critical question, “What will happen to my home”?
Should You Move Out?
We get this question a lot. And as you can imagine, there is no perfect answer. Each case is unique, and there isn't a one-size-fits-all solution to this dilemma. However, it is an important question and one that must frequently be dealt with immediately. It is an issue that is ripe for resolution at the “temporary orders” stage of the case. My previous blog post, “Should I Move Out of Our House?” takes a more detailed look into this crucial issue, and I urge you to read that article for more information about whether you should stay or go.
Who Owns the House?
This is a hugely important inquiry. In Texas, property can be community or separate. Real estate can be owned by a couple as a community asset, owned solely by one of the spouses as separate property, or even jointly owned as the separate property of both spouses (this happens when a couple buys a property before marriage and after the purchase decide to marry).
In general, all marital property during a divorce must be characterized as either separate or community before the property can be divided by a court. The characterization of property as either a spouse's separate property or as the couple's community property is a huge factor in deciding who owns the house and how it will be divided upon divorce.
Some key (but oversimplified) points to consider about the characterization of property are:
- Separate property – is property owned or claimed before marriage, acquired during marriage by gift, devise, or descent (inheritance). Spouses can make gifts to each other during the marriage, and such property, if proven to be a gift, is considered separate property. Also, recovery for personal injuries sustained during the marriage is separate property, except for any recovery for lost earnings or loss of earning capacity.
- Community property – is all property, other than separate property, acquired by either spouse during
- Community property presumption – all property (including the family home) possessed by either spouse during or on the dissolution of the marriage is presumed to be community property. The party claiming that property is separate has the burden of proof to rebut this community property presumption.
- Proof of separate property – the degree of proof required to establish that property is a spouse's separate property is “clear and convincing evidence.” With assets like financial accounts, this can be an onerous burden to meet, as there is often commingling of community funds with separate funds.
- The inception of title rule – with titled assets such as real estate, the “inception of title” rule states that the character of property as either community or separate is set at the time of the inception of title to the property.
- Mixed character property – property can be owned by the community estate, the separate estate, or both separate estates of the spouses.
Some Common Home Purchase Scenarios.
Characterization issues can be complex. Good lawyers and judges disagree on characterization issues all the time. This is why having an experienced property division lawyer on your team can be the difference between success and failure during a divorce. Here are some uncommon scenarios that can arise regarding the characterization of a marital home:
- A house is real estate, so the “inception of title” rule will come into play. The inception of title is traced back to the date an earnest money contract is signed. Here's one scenario – Mr. signs an earnest money contract solely in his name. He then marries Mrs. and then closes on the house after they are married. Result? The house is his separate property.
- A piece of land or lot is one spouse's separate property. The couple then builds their dream home on the land or lot during the marriage. Result? The house is the separate property of the land or lot owner. But, there is probably a community reimbursement claim for the capital improvements.
- One spouse buys a home with their separate property, but title to the house is taken in the names of both spouses. Result? The purchasing spouse is presumed to have made a gift to the other spouse of a one-half separate property interest in the property. However, this presumption can be rebutted by clear and convincing evidence that there was no intent to make a gift.
- One spouse buys a home with their separate property, but title is taken solely in the other spouse's name. Result? It is presumed that the purchasing spouse made a gift to the other, and the property is 100% the other spouse's separate property. Again, this presumption can be rebutted by clear and convincing evidence that the purchasing spouse didn't intend to make a gift to the other spouse.
- A spouse who owns a house signs a deed transferring ownership of it to the other spouse during the marriage. Result? The transfer by deed creates a presumption that the receiving spouse was gifted the home as their separate property. Likewise, if a deed recites that a home purchased during marriage is the separate property of the purchasing spouse, that deed rebuts the community property presumption.
- A house is transferred to both spouses as a gift, and the deed lists both of their names as grantees (think wedding gift here). Result? Each spouse has an undivided one-half separate property interest in the home. Likewise, when a home is purchased in a child's name, there is a presumption that the purchase was a gift to the child.
Each of the circumstances listed above is very fact-intensive and will depend upon the unique circumstances of the transaction. Given how complex these scenarios can be, when it comes to an asset as valuable as real estate, you would be well advised to seek the advice of a competent and experienced property division attorney.
What happens when a judge awards a community home to one spouse and orders that spouse to pay the mortgage that is in both spouses' names? This can be a real problem for the spouse who was not awarded the house. Why? The divorce decree does not remove your name from the mortgage, for starters. Any late payments by the spouse who was awarded the house can affect your credit rating. And, should you later wish to purchase your own home, your ability to qualify for a new mortgage may be affected because your “debt to income ratio” will reflect the old mortgage.
However, there may be some options for getting your name off the mortgage. The parties can agree, or the judge can order the spouse awarded the home to refinance the mortgage within a certain period (90 days after the decree is signed is typical). However, you must carefully consider whether the spouse awarded the house will qualify for a mortgage. If it is a large mortgage, and the spouse who must refinance is unemployed or lacks sufficient earnings, it may be tough to qualify. But in cases where there is a lot of equity, some lenders will refinance even when the refinancing spouse's earnings would not qualify for a traditional 80-20 mortgage. Best to inquire about financing ability well before any agreement is made or a trial is conducted.
If refinancing is not realistic, and neither spouse can afford to service the debt alone, most judges will order that the house be sold and the proceeds divided upon sale. Of course, this requires that the debt be serviced by one (or both) of the spouses until the sale and that other expenses like property taxes, insurance, homeowners assessments, and upkeep and maintenance costs be paid until the sale. There are many things to consider here and multiple ways to structure an agreement for the sale of a house, so again, you are well-advised to seek out the advice of an experienced lawyer.
And selling a house is not without conflict and drama. Divorcing couples frequently can't agree on the time of day, much less issues such as what real estate broker to use, the listing price, and the ultimate sales price. The devil is in the details when it comes to selling a significant financial asset like a house, and when there is an emotional attachment and one spouse doesn't want to sell, it can get nasty in a hurry. An experienced lawyer can help prevent the many issues that can arise when the marital home must be sold and one spouse is dead set against the sale.
Getting Equity Out of a House Without Selling It.
Selling the house is often the simplest way to get each party's share of equity out of the asset. Notwithstanding the conflicts that can arise about brokers and pricing, each spouse walks away with their share of the equity after the closing once the house is sold. Simple enough, right?
But what do you do if one spouse will keep the house? There are other options, including:
- The spouse keeping the home writes the other a check for their share of the equity. This is great if the spouse keeping the house has the funds to write that check. Often, that is not the case.
- The spouse who does not receive the house can be awarded other marital assets to “offset” or “equalize” the equity. For example, one spouse gets the home, and the community equity in the house is $100,000. If other assets can be awarded to the other spouse of equal value, the two awards are said to offset each other.
- However, great care must be taken when the asset being used for the offset is “taxable.” This is often the case with a retirement account such as IRA or 401(k). An award of the value of a retirement account is not the same as an award of cash or a non-taxable asset like a brokerage account. Most retirement accounts are “taxable,” meaning the taxes owed are deferred until the money is withdrawn. So be especially careful when considering an exchange of home equity for a taxable asset like a retirement account.
It is tough to face the reality of moving out of or selling your home. There is such an emotional attachment to the family home. So many memories live in our homes, some good and some bad. But in the end, legally speaking, a marital home is an asset that must be divided either by agreement of the parties or by an award by a judge. Therefore, you need to think in terms that the marital home is your single most significant financial asset.
There are a lot of complicated issues surrounding the division of a significant asset like real estate. From characterization issues to practical problems like how do you separate the equity to how property can be marketed and sold, division of the family home is often THE financial issue in a divorce. Don't go it alone. The legal and practical issues you face are too important and too complicated to try and handle yourself without the benefit of wise, experienced counsel.
Importantly, when it comes time to sit down to negotiate (mediate) and address these complicated issues, you'll want the knowledge and experience of a mediator who has tried these cases and made the difficult decision of how to divide the family home.
Don't Forget to Mediate!
Most family law cases must be mediated at least once before proceeding to a final trial. In fact, most courts will also require mediation in cases involving disputes over custody, visitation, or child support hearing temporary orders. Armatys Millard can help with both! We understand the issues for temporary orders and for a final trial, and we will give you the benefit of our years of judicial experience and knowledge.
Armatys Millard Is Here to Help!
Walter Armatys and John Millard have significant family law experience, both as trial lawyers and as Family Court Judges. This judicial experience gave Walter and John a keen insight into how Judges think, what persuades them, what annoys them, and, importantly, what information Judges need to make an appropriate ruling. Armatys Millard provides mediation and arbitration services for family law disputes pending in Fort Bend, Harris, and surrounding counties. You can count on our extensive family law experience and judicial wisdom to help successfully resolve your case.
CONTACT US NOW
If you need to mediate or arbitrate a divorce, custody dispute, or other family law issue, Armatys Millard, PLLC can help. Check availability and book your session online or call our office at 281-313-6800. We're here to help!