The financial aftermath of a divorce can feel overwhelming, especially when it comes to managing shared assets like the family home. One strategy that might not immediately come to mind is a cash-out refinance for divorce. This approach can offer a lifeline, enabling one party to retain the home while ensuring both parties receive their fair share of the equity. In this blog post, we’ll break down how a cash-out refinance works in the context of a divorce, offering clear, actionable insights to help you make informed decisions during this challenging time.
Cash out Refinance for Divorce: Creative Strategies to Divide Home Equity Post-Divorce
Navigating the complexities of selling a home during a divorce can feel like a daunting endeavor. This process becomes increasingly intricate when the asset in question holds substantial value, and when external factors and personal disagreements come into play. The sale of a family home isn’t just tedious; it’s a critical step that often encompasses a significant portion of your net worth.
Disagreements between you and your spouse can add layers of difficulty, especially if you’re already at odds on various matters. A multitude of decisions awaits, from choosing the right realtor—who can expertly showcase your home to potential buyers and facilitate a smooth closing—to agreeing on the finer details of the sale.
Suppose you were awarded $75,000 in equity in exchange for leaving the family home. In that case, you may be able to negotiate for a larger share of the community estate, so you all do not have to go through the effort of pulling that money out of the house. This option is great to utilize if there is sufficient property to make this kind of trade-off. If your community estate (and separate estates as well, for that matter) are rather barren, then other options may need to be looked into to pay out the equity in the house.
Cash out Refinance for Divorce
You hear a lot about this arrangement if you watch television or listen to financial shows on AM radio.
A cash-out refinance occurs when, after a divorce, your spouse receives the house as part of the settlement and then agrees to refinance the home within a few months. As a part of that refinance, your spouse can pull equity out of the house to pay you, make repairs on the home or do any other number of activities concerning the property.
This option can run into a snag if your spouse does not qualify for a refinance. A refinance is not an adjustment or modification of your current home mortgage. On the contrary, a refinance is basically like reapplying for another mortgage that will replace your existing mortgage. Your spouse must then pass or fail based on their income, credit score, and other factors critical to the lender’s decision.
Understanding Owelty Liens: A Complex Tool Simplified
What is an Owelty Lien?
An owelty lien can seem like a legal labyrinth, but it’s a powerful tool in divorce settlements involving home equity. Its complexity often leaves even seasoned attorneys scratching their heads. However, demystifying this concept is crucial for those looking to understand their options in dividing home equity in a divorce.
Illustrating the Impact of Owelty Liens
To clarify the concept, consider a practical example. Imagine a divorcing couple co-owning a home with significant equity. Imagine a couple going through a divorce owns a home with considerable equity. This section breaks down the process step by step, illustrating how an owelty lien operates in a real-world scenario.
Navigating the Legalities
The successful implementation of an owelty lien hinges on precise legal language and filings. This part delves into the specifics of what needs to be included in the final decree of divorce, emphasizing the necessity of recording the owelty lien and deed with the appropriate county clerk to ensure legality and enforceability.
Executing the Financial Arrangement
Here, the focus shifts to the practical execution of the owelty lien agreement. It outlines the process for refinancing the property under the new terms, ensuring that the spouse retaining the home can secure the necessary loan amount while the departing spouse receives their equitable share of the home’s value.
Ensuring Compliance and Completing the Process
The final section underscores the importance of including all requisite owelty lien paperwork in the divorce decree. It provides guidance on drafting and executing the necessary documents, like the Deed of Trust and Special Warranty Deed, to finalize the arrangement legally and equitably.
Refinancing a Home Can Cost a Significant Amount of Money
Keep in mind that you cannot go to a lending company and ask about refinancing a mortgage and not expect to pay some money along the way. The costs associated with a refinance will typically increase the more expensive the loan is. If you are the spouse who has to go through the process of applying for the refinance, it would be wise to estimate the costs associated with the refinancing and set those aside in the final decree of divorce. Since your ex-spouse is getting a benefit from this process, then they can pay towards its accomplishment.
The money involved in these types of deals can be impacted by the strength of the local economy and the housing market in general. If there is insufficient equity in the house (no cash available to pull out of the refinance when it is completed), then this probably wouldn’t be the wisest option. If you only have $15,000 in equity, then you may need to re-think your strategy. Another thing to remember is that a refinance may not be possible for you or your spouse based on your income as separate persons.
I know it seems like this is something that I am bringing up repeatedly, but you should not take it for granted that a refinance is possible. I would tell you to talk to whatever lender you anticipate wanting to use before you go to trial or as you enter the later stages of your case to find out if you even qualify. Suppose you do, then you know where to go from there. If not, you may need to push for the house to be sold outright and for you to take your gains (or losses) as they come.
Cash out Refinance for Divorce: Details Regarding the Sale of Your Family Home in a Texas Divorce
Navigating the complexities of selling a home during a divorce can feel like a daunting endeavor. This process becomes increasingly intricate when the asset in question holds substantial value, and when external factors and personal disagreements come into play. The sale of a family home isn’t just tedious; it’s a critical step that often encompasses a significant portion of your net worth.
Disagreements between you and your spouse can add layers of difficulty, especially if you’re already at odds on various matters. A multitude of decisions awaits, from choosing the right realtor—who can expertly showcase your home to potential buyers and facilitate a smooth closing—to agreeing on the finer details of the sale.
Early collaboration is key. Sharing preferred realtors, a list potentially provided by your attorney, can pave the way for a mutual agreement. This cooperative spirit extends to determining the listing price, adjusting the offer based on market response, and handling repairs. Decisions on whether one party or both will cover repair costs, and how to manage reimbursement, require clear communication and agreement.
In essence, selling a home during a divorce demands a high level of coordination, not just with your soon-to-be ex-spouse and their attorney, but across multiple fronts. By approaching this task with a willingness to collaborate and a clear strategy for resolving inevitable disagreements, you can navigate this complex process more smoothly, aiming for a resolution that respects the interests of all parties involved.
What if the Home You Own Is Located in Another State or Country Other Than Texas?
In this day and age, where people move from place to place with relative frequency, you may find yourself in a position where you and your spouse own a home in another state other than Texas. Say that you moved to Texas from Louisiana while your spouse stayed back there to finish a job at an oil refinery. In the six months that you were here living alone, you concluded that you no longer wanted to be married to him. Once you find out that you need to have been a resident of Texas for six months to file for divorce, that is exactly what you did.
You and your spouse have almost made it out of your divorce, but you are concerned about what will happen with your marital home back in Louisiana. What you need to know regarding that house is that a Texas divorce decree cannot impact any real estate that you own outside of Texas.
A Texas family court judge can order you to deed the property to your spouse or vice versa, but a Texas judge cannot call you to sell a home in Louisiana. If and when you find yourself in this situation, your best bet would be to figure out what you want to do with this property as early as possible. It may be the case that an attorney from your home state may need to get involved to see that the interests in the property are taken care of according to the laws of that state and the state of Texas.
Questions about the family home about your divorce? Contact the Law Office of Bryan Fagan
Thank you for showing an interest in today’s blog post topic. Selling a home, refinancing a home, or pulling equity out of a home after a divorce case can be stressful, so I hope you learned something that can give you some degree of peace of mind as you start on your divorce journey. If you have any questions about the material in this blog post, please do not hesitate to reach out to us here at our office.
The licensed family law attorneys with the Law Office of Bryan Fagan offer free of charge consultations six days a week here in our office. These consultations are an excellent opportunity for you to learn more about your case and receive direct feedback about your specific circumstances.
Bryan Fagan, a native of Atascocita, Texas, is a dedicated family law attorney inspired by John Grisham’s “The Pelican Brief.” He is the first lawyer in his family, which includes two adopted brothers. Bryan’s commitment to family is personal and professional; he cared for his grandmother with Alzheimer’s while completing his degree and attended the South Texas College of Law at night.
Married with three children, Bryan’s personal experiences enrich his understanding of family dynamics, which is central to his legal practice. He specializes in family law, offering innovative and efficient legal services. A certified member of the College of the State Bar of Texas, Bryan is part of an elite group of legal professionals committed to ongoing education and high-level expertise.
His legal practice covers divorce, custody disputes, property disputes, adoption, paternity, and mediation. Bryan is also experienced in drafting marital property agreements. He leads a team dedicated to complex family law cases and protecting families from false CPS allegations.
Based in Houston, Bryan is active in the Houston Family Law Sector of the Houston Bar Association and various family law groups in Texas. His deep understanding of family values and his professional dedication make him a compassionate advocate for families navigating Texas family law.
