The most important asset that you and your spouse own is likely the family house. It represents a significant amount of money in terms of equity and debt. Most of us have a mortgage on our home. We would hope to someday pay off that loan if given enough time. For people going through a divorce there will also be a loan on that home. This means that you must balance the impact of the house in your divorce. It represents both an asset and a liability to a certain extent.
What you and your spouse want to do with that family home in the divorce will determine the course of action that you take. Without a doubt, this is an important decision for you to make and one that you should not take lightly. It is your responsibility to determine how you want your home to be handled in the course of a divorce. The better prepared you are for this decision the more stable your financial future will be as you head into your life after the divorce.
Community property and separate property in Texas divorce cases
One of the most essential pieces of knowledge that you need to possess for your divorce relates to the basics of community and separate property. Across the country, marital property division occurs in divorce cases. However, Texas divorces are unique, and we apply principles of community property division in our divorce cases. Texas is one of a handful of states that adhere to community property principles when dividing up marital property.
Community property in Texas presumes that all property is eligible for division. This does not mean that every item that you and your spouse own will be divided in a divorce. What it does mean is that the presumption is all property owned at the beginning of your divorce may be divided. It is up to you and your spouse to classify property in a way that would make it so the particular asset or debt will not be divided.
Separate property cannot be divided by a judge in a divorce case. Separate property mainly consists of property owned by either spouse before the marriage. Additionally, property acquired by gift or inheritance during your marriage is also classified as separate property. For the most part, separate property is easy to distinguish. You can prove that certain items are separate property as opposed to the community by showing proof of when the item was purchased or when the debt was incurred. It can become more difficult to prove separate property when the debt or asset is substantial.
Outlining a hypothetical situation regarding your home in a divorce
Let’s suppose that your family home was purchased by you before your marriage. You and your wife have been married for ten years. However, your home was purchased twelve years ago when you first started working after college. You found a great house in a neighborhood close to where you work. Since then, your wife moved in with you after the wedding and you have raised your children there. Your spouse is aware that you owned the home before your marriage.
Your wife has filed for divorce. You made sure to pull out all the closing documents that you saved from when the house was closed. In your mind, this makes it an open and shut case. There is no question that the house is your separate property. You shouldn’t have any concerns about the home in your divorce.
Contact the Law Office of Bryan Fagan with questions you have
You decide to reach out to one of the experienced family law attorneys with the Law Office of Bryan Fagan. You were referred to our office by a friend who recently worked with us on her divorce. The house was an immediate point of emphasis in your conversation. You wanted to know what sort of exposure you had concerning the house. In your mind, the children come first but this was an issue of importance, as well.
How to approach your separate property home in a divorce
Our attorney would share with you that because your home was purchased before your marriage it would be classified as separate property. There is not much doubt about that. Separate property income was utilized to make a down payment and all of the closing costs for paid for out of your separate property. You and your spouse were not married at this point so there isn’t much room for argument on that subject.
With that said, the discussion does not necessarily stop there. We have established there are two types of property in a divorce, community and separate. That does not mean that there are no other elements to discuss regarding the family house. Our attorney asks you how you have been paying the mortgage since you and your spouse got married. You answered that mortgage payments always came out of the same bank account. That bank account is contributed to by you and your spouse with both of your incomes.
Income earned during a marriage counts as community property
Your spouse has no ownership claim to the house. However, that does not mean that she has no financial interest in it. For instance, income earned during a marriage by either you or your spouse is community property. That means that the income earned by either of you is properly classified as belonging to both of you equally. In other words, it does not matter who went to work and earned the income. Rather, all that matters is that you were married while the income was earned. For example, you could earn $1,000,000 a year while your spouse stays home and takes care of the children. Even though you were the spouse who earned the income it would technically be hers just as much as yours.
One question that many people have as they enter a divorce is whether this is true even if both you and your spouse have separate bank accounts. Theoretically, you would deposit any income you have into your bank account while your spouse would do the same with their bank account.
What if both of you were meticulous about always depositing your paychecks into these separate accounts during your marriage? Would your income still be classified as community property? The answer to that question is: yes, it would not matter where your money was deposited after it was earned. So long as you are married that income is community property. You and your spouse do not need to share a bank account for it to count as community property income.
Reimbursement in a Texas divorce
Now that we have talked more about how income is handled in a Texas divorce, we have even more have an opportunity to figure out how the mortgage payments on your home would be handled in a divorce. Those mortgage payments made from your joint bank account are almost certainly community property. The only money in that account comes from income earned at your jobs. There is not much of a doubt that this income is community property.
Therefore, the payments made on the mortgage were community property. This begs the question: how are community property payments on a separate property home handled in a divorce? While this scenario does not result in any type of ownership for your spouse in the separate property home what it does do is allow for the topic of reimbursement to be discussed in earnest.
Reimbursement is exactly what it sounds like. The community estate would be eligible for reimbursement from your separate estate for contributions made to your separate property home. Essentially, because you and your spouse contributed property towards the benefit of your separate estate now that you were getting a divorce your separate estate may need to reimburse the community estate. This would involve calculating all the payments made from your community estate and then negotiating a reimbursement based on that amount.
The importance of working with an experienced Texas family law attorney
Once you find out about the possibility of reimbursement in this divorce your head begins to spin. For a moment, you thought that you were free and clear when it came to how your home was going to be treated in the divorce. Once you found out about the possibility of a reimbursement, however, you slowly realized that it would be a much more complicated situation.
Potentially, it could work out to where you need to count each mortgage principal payment and add them all together since you got married. With escrow and insurance, it may not be a dollar-for-dollar reimbursement charge that you owe. However, almost certainly on the principal payments you would tend to owe the community estate what was paid. This not only represents a significant amount of money but a potentially tedious amount of calculation and arithmetic.
However, the more prepared you can be in the divorce the better the outcome for you and your family. Understanding this now allows you to prepare for the outcomes that are potentially available in your case. For instance, you could enter the divorce with a set amount of money that may need to be reimbursed.
Doing so allows you to begin the negotiation process with a great deal of knowledge already in hand. Spouses tend to suffer when they lack an understanding of the issues in their case. Almost certainly, there will be some degree of reimbursement needed due to the 10 years of mortgage payments having been made to the community estate. What you and your spouse ultimately agree to will depend upon the facts of your case and each of your willingness to negotiate.
What could end up happening with your house in a divorce?
The outcomes available for your home in a divorce depend in large part on whether the house is a community or separate property. We have already discussed the likely outcomes for your house if you own the home as a separate property. From there, you likely will owe your spouse reimbursement in the form of the prior mortgage payments made. Additionally, you need to consider whether community property was used to make any additions or improvements to the home. Again, depending upon the home and the length of time you have lived there these can end up being significant payments of reimbursement.
As we stated earlier, the home may not be divided in a divorce because it is your separate property. You will come out as the owner of the home at the end of the divorce. Technically, you may decide to do something like sell the home to your spouse because of the divorce. For instance, if your spouse desires to stay in the home because the children have stability there you may end up deciding to do that. Absent something like that you will be able to walk away from the divorce with the house in your settlement.
From there, you can make any decision you want as far as what to do with the home. As we are about to see, there are more options available and more considerations that are necessary if the house is community property. In any event, having the advice and perspective of an experienced family law attorney can make a tremendous difference when it comes to negotiating through complex subjects regarding valuable assets.
Handling a community property home in a divorce
You and your spouse need to have a plan when it comes to handling issues related to the family home in your divorce. It is not optional that you begin to think critically about what to do with the house in your divorce case. Since the home is an incredibly important part of your community estate it represents a substantial sum of money and percentage of your assets. In other words, you cannot afford to take this subject lightly. The better your plan the more clarity you and your family will have after the divorce.
Oftentimes, the most clear-cut option is to sell the house because of your divorce for example, if the house was purchased bearing in mind your income and that of your spouse then neither of you may be able to afford the mortgage payments on your own. Rather than put yourselves in a tricky financial position it would be prudent to sell the house to split the equity however you see fit period from there, you can pay debt, save up money, and eventually purchase a new home as a single adult. The details of selling a house and a divorce can be complicated. Again, working with an experienced family law attorney can be a tremendous advantage for you to have.
Staying in the family home after a divorce
If you decide to stay in the family home, then that would involve paying out your spouse their share and the equity of the house. There are many ways to do this. You can seek a cash-out refinance or simply take an equal amount of assets from elsewhere in the community estate and pay your spouse from that. Whatever you decide to do it is important to do so intentionally. Do not wander into a situation where you are unsure of yourself when it comes to a large asset. Make sure your family is protected now and, in the future, when it comes to the sale of your home.
Final thoughts on separate property homes and divorce
Whether your home is separate or community property you should be prepared to handle any potential issues when it comes to the home in your divorce. The attorneys with the Law Office of Bryan Fagan are uniquely suited to assist individuals just like you who are dealing with questions regarding the family at home. Thank you for choosing to spend part of your day with us here on our blog.
Questions about the material contained in today’s blog post? Contact the Law Office of Bryan Fagan
The attorneys with the Law Office of Bryan Fagan offer free of charge consultations six days a week in person, over the phone, and via video. These consultations are a great way for you to learn more about the world of Texas family law. Before signing a document or negotiating on a subject you do not know well, contact our office. We look forward to the opportunity of serving you during an important part of your life. The Law Office of Bryan Fagan is on your side.
Evan Hochschild was raised in Houston, TX and graduated from Cypress Creek High School. He went on to graduate from Southwestern University in Georgetown, TX with an undergraduate degree in Political Science. While in college, Evan was a four-year letterman on the Cross Country team.
Following in the footsteps of his grandfather and uncle before him, Evan attended law school after he completed in his undergraduate studies. He graduated from St. Mary’s University School of Law and has practiced in a variety of areas in the law- including family law.
Mr. Hochschild is guided by principles which place the interests of clients first. Additionally, Evan seeks to provide information and support for his clients with the heart of a teacher.
Evan and his wife have four small children together. He enjoys afternoons out and about with his family, teaching Sunday school at his church and exercising. A veteran attorney of fourteen years, Mr. Hochschild excels in communicating complex ideas in family law simply and directly.
