Does Refinancing a Home Change Ownership of It in Relation to a Texas Divorce?

In Texas divorce cases, family courts are likely to hold that refinancing your home during your marriage doesn’t automatically convert it into community property. This applies even if it was originally your separate property. This scenario might occur if you bought a home before marriage and obtained a mortgage solely in your name. Later, you refinanced the home, adding your spouse’s name to the new mortgage. However, this action wouldn’t alter the separate property status of the home. One common question that arises in such situations is, “When you refinance, do you get a new deed?”

It’s important to note that refinancing typically doesn’t involve obtaining a new deed for the property. Instead, it involves updating the mortgage loan. This potentially changes the names on the loan agreement, but does not alter the ownership status reflected in the deed.

Does reimbursement apply if community funds pay the mortgage on a separate property home?

You need to be aware that the concept of reimbursement would come into play here. In the event of divorce, your spouse could likely claim reimbursement for her portion of the community property funds used to pay the mortgage on your separate property home. The thought here is that because the house is now in both of your names, your spouse bears some liability on a home that she does not own. The idea of reimbursement would allow for her to recoup some of the money paid into the home so she has something to gain in the divorce rather than having only liability.

To put a bow on this discussion, I would tell you that a simple refinance of a home that is your separate property does not confer an ownership interest upon your spouse. However, he or she may have a claim for reimbursement. Unless you sign a deed that transfers ownership to your spouse the home should remain your separate property. Since refinances don’t usually do this type of thing you should be good to go as far as keeping that house as your separate property despite the refinance. 

How a house purchased in one spouse’s name before the marriage can be jointly owned

Let’s consider a hypothetical situation to illustrate a point about jointly owned separate property. Suppose that you and your longtime girlfriend lived together with her children. You signed an earnest money contract and closed on a home in your name only. Afterward, you marry this woman. Ten years later, you and your wife are heading towards a divorce. Would you consider the home purchased in your name before the divorce to be deemed your separate property?

Under this scenario, it’s probable that the home would be deemed jointly owned separate property. Don’t assume the house will remain separate property solely because it was purchased before your marriage. Certain circumstances can complicate matters related to jointly owned separate property, potentially affecting your case.

Could a refinance in your name alone still result in joint ownership in Texas?

Even if you alone were to refinance, Texas case law suggests that if you and your spouse had an agreement to jointly own the home based on the refinance, it could qualify as jointly owned separate property. If your spouse provided any of the money to close on the refinanced home/loan then this would further strengthen the argument that your spouse has an ownership interest in the home that is technically your separate property. 

Just to put a bow on this one: in the event that you and your spouse initially agree to buy a home together then there likely would be evidence that your spouse could produce to show that you all looked for a a new mortgage lender together. If you make a decision to take out that loan in your name alone for some reason, but that your spouse contributed money from the community estate to facilitate the deal it is likely that the house would be separate property of yours but your spouse would have a joint ownership interest in it. 

In a divorce what can happen to jointly owned separate property?

All of this discussion is nice if we are going through a seminar for family law attorneys. However, let’s focus on discussing property you own that may qualify as jointly held separate property.

To me, there are a handful of situations that can result in jointly held separate property being in play in a divorce case. The first is when a house was gifted to you and your spouse during your marriage. Picture a scenario where your aunt gifted a house to you and your spouse before she retired abroad.

A gift leading to joint ownership

Another situation that involves a gift which may result in jointly held separate property would be if you own a separate property home and make a gift of half the ownership interest in the home to your spouse. This is the scenario we talked about earlier in this blog post. If you refinance your separate property home and sign a separate deed which transfers interest in the home one-half to your spouse, then that action is interpreted as a gift in family courts. 

Purchasing a home with a fiancé or girl/boyfriend before your marriage could result in a situation where you have jointly owned separate property. You may decide to purchase a home but to only put the house in your name because you could get a better interest rate that way. If your fiancé contributed money for the closing, made payments for improvements, and paid the mortgage, then the property would likely be considered jointly held separate property if you were to subsequently get divorced.

Dividing jointly owned separate property

The big takeaway from all of this is that if you go to a trial in your divorce a judge cannot award a jointly owned separate property home to you or your spouse individually. Why? The reason is that a judge has no power to take away your ownership in something that is your separate property. I cannot envision a divorce trial outcome where the house isn’t sold, and the equity isn’t divided between you and your spouse. While this may be an imperfect solution for many in your position, the judge’s options are limited.

However, the advantage of modern divorce is that you and your spouse can devise your own solutions to these issues. For instance, if you and your spouse were to attend mediation and come up with your own settlement it could be that one of you decides to buy the other person out of their property interest in the home. This way, one of you could be awarded the home while the other could receive money.

If acquiring cash to buy out your spouse’s ownership share proves difficult, you could replace it with a similarly valued portion of the community estate. If your community estate is relatively small and such property is unavailable, you would likely need to refinance the mortgage to make cash available from that process.

How a home can be valued in a Texas divorce

Once it’s established, either by agreement of the spouses or by order of the judge, that a home is to be sold in a divorce, you’ll need to determine its value. Real estate professionals often emphasize that the initial sale price of the house greatly influences the return. Setting the price too high may result in having to significantly reduce it later, which typically doesn’t facilitate the sale. Alternatively, if the home remains on the market for too long without being purchased, it may need to be relisted.

Avoid relying on online home value estimates

It is tempting to want to jump online and just plug your address into a search engine and see what one of the nation-wide real estate websites estimates the value to be. I think that this is a bad idea. The reason why I think this is a bad idea is that their estimates tend to not be all that accurate, unfortunately. A website does not know anything about your home specifically or more broadly anything about your area of town. There may be particular issues with your home or area that make it more or less marketable. This can have a tremendous impact on the value of your home. As a result, I do not recommend going the easy route and just using an estimate you find online. 

Rather, I think that it is a good idea to utilize the services of a real estate agent who serves your are in order to help you get an accurate idea about what your home is likely to sell for on the open market. A real estate agent will know your area well enough to be able to take into account on the ground factors that a website that serves the entire United States would be unaware of. He or she could look at local data, observe sales trends in your neighborhood and do an analysis based on the sale of similar homes in your area during recent months. If you and your spouse know a real estate agent, he or she may be willing to do this for free since it will not take much time or effort.

Consider a real estate appraiser for home value

On the other end of the spectrum, you all could decide to hire an appraiser who works in real estate in order to complete a more detailed study of the value of your home. He or she would look to what similar properties have sold for in recent months. The appraiser would then adjust the numbers up or down depending on what degree of differences there are between your property and those he or she was able to locate locally. 

What can happen when dividing a home in a Texas divorce?

The judge in your case will have more than option at his disposal when it comes to dividing the family home in a divorce trial. The simplest would be make a determination that the home is the separate property of your or your spouse’s. At that point, he could simply designate the house as separate property and conclude the matter, as he cannot revoke ownership of any property owned by you or your spouse as separate property.

Next, the judge could award the home to you or your spouse. This implies that the house is community property. However its allocation would depend on the facts and circumstances of your case. If not awarded to either of you individually, the house could be sold if deemed fair. If the real estate is located in a rural or countryside setting, the judge may divide the acreage accordingly. This approach may not be suitable for a house in a Houston suburb. It could work well for properties situated in the rural areas of Harris County though.

What happens with a mortgage in a Texas divorce? Head back to our blog tomorrow in order to find out

If you’re going through a divorce and have a mortgage on your home, check out our blog tomorrow. We will cover what a judge can do in relation to that mortgage within your divorce case. 

In the meantime, if you have any questions about the material that we covered here today please contact the Law Office of Bryan Fagan. Our licensed family law attorneys offer free of charge consultations six days a week where we can answer your questions and address your concerns directly. 

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Bryan Joseph Fagan( Attorney )

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.