What about the house? Community versus separate property in a Texas divorce

Your home is a huge asset for you and your spouse in a Texas divorce– in most cases. Assuming that you own some equity in the home, how it is characterized in the divorce will be extremely important. Just because your house is more valuable than, say, a piece of silverware doesn’t mean that it will be treated any differently from a community versus separate property analysis.

We concluded yesterday’s blog post with some of the finer points of when a house becomes a separate property and when it becomes part of the community estate. Whenever the earnest money contract is signed (not the closing on the house) is the time that the property comes into ownership. So, if you sign an earnest money contract on your home when you are single but close on the house when you are married, the law says that the home is your separate property.

Let’s take that example a step further. Suppose that you purchased a home as a single person-years before you ever got married. Now, as a married person, you and your spouse refinanced the house. You have a new mortgage that bears the names of you and your spouse. I have heard from clients in the past that because their name is now on the mortgage, the home is now a part of the community estate. What do the courts in Texas say about this scenario?

The long and short of it is that while your spouse’s name likely appears on the title to the house, as well, that does not make the home a part of the community estate. The reality is that their name was likely added to the deed to allow for a future foreclosure to occur with greater ease. This means that your spouse is not legally an owner of the home in the same way you are- despite their name being added to the deed and their word appearing on the home loan.

It would all come down to whether or not you would be able to testify that you intended to make a gift of one-half of the interest in your home to your spouse. More likely is that the mortgage company required both you and your spouse to sign the deed since Texas is a community property state. This will often be the case in a “normal” closing- both spouses will sign the act, or else the title company will not insure the title to the home.

Can ownership in a home ever be affected by a refinance?

As with most things in the law, the above information that I shared with you applies most of the time but not all of the time. Take, for example, the following hypothetical situation. Suppose that you purchased a home in 2005 and got married in 2007 to your wife. The house would undoubtedly be your separate property should you and your spouse get a divorce later on. The exception to this rule is whether not any transfer exists that evidences a desire for you to gift some ownership percentage in the home to your spouse.

If the intent is shown to refinance the home and not convey any interest via a gift to your spouse, you should be fine as far as maintaining the separate property nature of the house is concerned. However, if your spouse can show that you intended to gift a portion of the home (like a one-half interest) to your spouse, then we will be having a different discussion altogether. Be aware of the circumstances of any refinance on your case. If a court would suspect that you attempted to gift a portion of that property to your spouse during the refinance process, do not be surprised if that is how a court views the situation.

What is jointly owned separate property?

Let’s lay out another scenario to illustrate more points about this subject. Say that you lived together in a house with your children and the mother of those children. You were not married to the woman. On your own and in your name, you signed an earnest money contract that would allow you to buy a house solely in your name. After doing that, you and the children’s mother got married.

A few years later, you find yourself getting a divorce from your wife. The question now needs to be asked whether the house you purchased before you were married is your separate or community property. At first glance, and based on everything that we have been discussing for the past few days, it would seem that the house would be your separate property. It was purchased in your name and done before you got married. Pretty open and shut, right?

Not so far. There are court cases that have determined the home in this situation to be jointly owned separate property. This tells you that no matter what side of this story you are on, it is not always a safe assumption to think that a house is a separate property without going further into the details. The key here is that you and your spouse, while not married when you purchased the home, were in a relationship.

The intent is the name of the game. If you and your spouse intended for each of you to become joint owners of the home, then that would significantly impact whether or not the house could be considered jointly owned separate property. If your partner (not yet spouse) even put up some money for the down payment on the house, this would be especially important. While the property would not become a part of the community estate, both you and your spouse could have a 50% ownership interest in the separate property home yours.

What does this mean to your divorce?

The discussion we just had on jointly owned separate property is all good and well, but it doesn’t amount to much unless your spouse can achieve some result in the divorce that will compensate her for that ownership interest. Therefore, the question we need to ask ourselves is what will a family court judge do in a situation where your spouse owns a joint ownership interest in a piece of your separate property.

I think the most important thing to keep in mind is that a family court judge, if he determines a home to be jointly owned separate property, cannot award a house to one of you individually. The reason for this is that a judge cannot cause you to lose ownership of any separate property that belongs to you.

That does not mean that all is lost if your goal is to be awarded the home in your divorce, despite your spouse owning a joint interest in the piece of separate property. The reason for this is that you and your spouse will have an opportunity in mediation to hash out an agreement on your own. While the judge cannot separate your spouse from their ownership interest, you all can agree to a buy-out of whatever their equity stake is in the home. Cash or a simple exchange of other property in your community estate would make sense in this scenario.

What if you can’t agree in mediation as to what to do with the house?

Most divorces settle in mediation– or at least will settle before going to a trial. There are many reasons for this, but the bottom line is that it is not worth pursuing a problem rather than a settlement for more people. Judges rarely allow you to attain the desired outcome for your case that you had in mind. Dollars to donuts, I bet if you asked most people as they walked out of the courthouse after a divorce trial, a majority would tell you that there were similar (if not better) arrangements proposed in mediation that they declined to accept.

However, if you find yourself in a situation where you are staring down the abyss of a divorce trial, you need to know what a judge can do with your joint ownership interest in a home that is your and your spouse’s separate property.

The options, as you may imagine, are pretty limited. Number one, a judge can leave you and your spouse as owners of the home. That’s right. You and your soon-to-be ex-spouse would jointly own a house together. It is difficult enough to manage any asset with a partner- ask anyone who has ever gone into business with a friend, family member, or another person in a partner-type relationship. Now imagine doing the same with your ex-spouse! Not exactly the most desirable situation is imaginable. Yet, this is an option for the judge to take (though unlikely for the reasons previously stated).

The other option for the judge to consider is whether or not the property can be divided into two at the request of either party. I would imagine that this could work if you owned a tract of land divided up where you and your spouse could be awarded a share of that land after the divorce.

On the other hand, I don’t imagine many of you reading this blog are in a position where you would be concerned with this type of situation. I guess, that like most of us any of you reading this blog post own a house in the suburbs or in a city/town that is not able to be divided up like this. You can’t take a chainsaw and cut a house in two like you can divide a parcel of land in two. So what, then, is a judge to do in a situation where the house needs to be divided up?

The judge can order that your home be sold if it cannot be divided in the manner described above. A family court judge cannot split up the house like this according to the Texas Family Code. However, according to civil law principles, a judge could divide the place and order it sold.

What does all of this mean for you and your spouse?

You need to take away from all of this because if you own a house as your separate property, but your spouse has a joint ownership interest in that home, then the home will likely need to be put up for sale in connection with your divorce. A division of the house in the manner described above is not likely if your home is in a suburban or urban environment. This is not an odd situation to be in and occurs in divorces cases with great frequency.

My advice would be not to allow a judge to make the decisions regarding the sale for you. If you can see that this is the likely outcome of your case, you and your spouse are better off putting your pride aside and agreeing in mediation to the terms of the sale. You can decide the percentage each of you receives out of the proceeds of the deal and how to market the house, and what realtor to select to sell the home. This allows you all more control over the situation and can probably save you some money as well.

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