It goes without saying that selling a house is the easiest way to get the equity that you own out of the home in order to divide between yourself and your spouse. However, in the event that you or your spouse remain in the home after the divorce, this will not be an option. In situations like that you and your ex-spouse will need to choose from a range of different options in order to complete this financial portion of your divorce case.
One option that parties frequently undertake in regard to pulling equity out of a family home is if your ex-spouse is awarded the family home in the divorce, she will agree to refinance the home with cash out within a specific time period. That time period could be 90 or 120 days. A home equity loan is another variation on this option for those that are willing to take on debt in order to finance the paying out of equity. It could happen, however, that your spouse does not equality for a refinance or a home equity loan due to their having a low credit score or low income.
An owelty lien: What it is and what can it do to help spouses divorcing in Texas
If the above option is not available to you, there is at least one other option for you and your ex-spouse to take advantage of. In your divorce decree, you could be ordered by the judge or could agree to language that creates an owelty lien that allows you and your spouse to divide up the equity in the home. This can potentially provide a handful of advantages for you and your ex-spouse. Before we discuss those advantages we need to go over what an owelty lien actually is.
The law in Texas allows for what is called an "owelty partition" in our Constitution. Under this scenario, you and your spouse are able to access the equity in your home in order to assist in dividing up the property. An owelty partition would place a lien against your home for your interest, as the person who is leaving the house and wanting to collect your equity stake.
If not for the owelty lien, you and your spouse could only cash in on your equity up to 80% of the value of the home. Using the owelty lien, however, you can cash in up to 95% of the value of the home. Some lenders will not allow you to cash in beyond 80%, however. The partition will also allow your spouse to obtain a refinance that is standard, rather than the home equity loan that we discussed earlier in today’s blog post. From your spouse's perspective, this would allow for lower interest rates and an easier time qualifying for the refinance.
Now that I’ve explained the concept of an owelty lien/partition, let’s go over an example to make sure that I haven’t muddied the waters too much for you all. You and your husband are getting a divorce and you own a home in Houston with a mortgage. The value of your house is $400,000 and you owe $200,000 on the mortgage. Under the agreement of your divorce, your husband will keep the house and the equity in the home will be split evenly between the two of you- $100,00 to you and $100,000 to him.
Under this arrangement, your divorce decree will need to state that the owelty partition and lien must be filed with the Harris County clerk’s office. Your husband would move to refinance the loan at $300,000- the $200,000 owed on the current mortgage plus the $100,000 that is owed to you in equity. Once that step is complete, you would get your $100,000 and your ex-husband becomes the full owner of the home. Your name will no longer appear on the deed to the home or on the mortgage. The caveat to this is that your husband will still need to qualify for the $300,000 loan.
A couple of additional points on the owelty lien/loan
There are costs associated with a refinance of the loan, including taxes and insurance. The lender will charge you money to refinance your current mortgage. Generally speaking, the more money that is on the mortgage, the more the refinance will cost you. This is something that you need to know ahead of time so you can estimate these costs and work them into the division of property in your divorce. If you are going to be the spouse responsible for the refinance you will want these costs offset by your spouse taking on a greater share of debt or you receive an amount of money equal to the costs of the refinance.
Once the owelty partition and lien language are inserted into the divorce decree and your owelty deed is recorded you would then be able to refinance the property into your name. The proceeds from the refinance can then be used to pay off the owelty lien and the existing mortgage. As we have mentioned numerous times in this blog post, in order for these steps to occur without a hitch you or your spouse (whichever of you will apply for the refinance) must first qualify. There must also be sufficient equity in the home for a buy out to occur for the spouse who is leaving the family home.
The final step in this process would be for the spouse who no longer owns the home to release the lien held on the property. Once this step is executed your name would no longer appear on the deed or on the mortgage. As far as advice on this subject, I would recommend that if you plan on keeping the home after the divorce you should meet with a loan company that you plan to refinance with prior to mediation in order to have all your financing paperwork ready. If you cannot prove that you qualify for the refinance your spouse may not be willing to work with you.
What happens when you sell the family home in a divorce?
With most divorces that involve the sale of the home, there are almost always a few issues that arise after the divorce has concluded. As such, you and your attorney should anticipate these issues and plan for them in your mediated settlement agreement and/or the final decree of divorce.
It is not uncommon for you and your spouse to disagree about what realtor to use for putting the house on the market and locating a willing buyer. You may have a college buddy who sells houses that you really want to use. Your spouse may have a cousin who just got their real estate license and is eager to start selling homes. Disagreements on the price at which the home should be listed for sale in addition to what repairs (if any) need to be completed prior to selling will need to be sorted out. Hopefully, there is already some clear-cut language on how the proceeds of the sale will be divided between the two of you.
Before you have a completed agreement on the sale of the residence you must be able to have an answer to which of you will remain in the house until its sale and who will be the primary point of contact with the realtor. Mortgage payments, utilities, ancillary bills (like lawn care and pool maintenance) will need to be sorted out in advance. These are issues that you almost certainly will not want to negotiate with your spouse about once your divorce is wrapped up. Work them out in mediation and you can include them in your final decree of divorce so there are no questions about what each of your responsibilities is.
What happens with real estate is owned outside of Texas?
Texas is home to many people who are not from here originally. That’s just a fact. Whether you are from another country or another state, and then move here later in your adult life, the chances are fairly high that you own property in a place other than Texas. If this is true of you or your spouse, then please pay attention to what we are about to discuss.
A divorce decree from a Texas court cannot pass title to any real estate that is owned outside of Texas. A court in Texas can order that you and your spouse transfer ownership of property in another state from you to your spouse, or vice versa. With that said, a divorce decree from Texas can be enforced by the family court of any other state.
If you or your spouse own property in another state it is likely that your attorney will do some research and find an attorney who practices in that state for you to work with on figuring out what to do with that real estate. Your Texas divorce decree can mandate that if you are giving up your interest in the out of state residents that you will need to go to that state and meet with the attorney in person to sign documents that facilitate the transfer.
A note on taxes when selling your family home in conjunction with a divorce
As much as we might like to do so, it is unwise to ignore the subject of taxes when discussing divorce and/or the sale of a home. I don't want to dwell on it too much in this blog post but we will conclude things today by touching on how taxes will impact the conversation we've had over the past few days.
In the sale of a family home, you and your spouse are both able to exclude up to $250,000 from the sale of that home. This capital gains exclusion would impact you if you have lived in the house for any two of the last five years prior to the sale of the home. Effectively, this means that for you and your ex-spouse to be the beneficiaries of this exclusion the house must be sold within three years of your divorce.
In the event that you are awarded the home in a divorce settlement, be aware that this exclusion can work against you if you later sell the house as a single person for more than $250,000. If the house were to be sold for more than $250,000 than you paid for it, you would owe taxes on that sale.
Make sure that you can afford those payments on the mortgage before agreeing to take on the family home after a divorce
If you are in a position where you are awarded the family home (and the mortgage) after the divorce and cannot afford to pay the mortgage, then you are in a tough spot. Your emotions and exuberance to keep the house for the stability of your family may have motivated you to stick your neck out and argue that you can remain in the house. Finding yourself as a single person with a large mortgage can be extremely difficult.
Before you put yourself in this position, I would recommend that you work with your attorney to determine whether or not you can realistically and comfortably pay the mortgage on your income. Do not assume that your spousal maintenance, child support or other payments will always arrive on time and in full. You need to be able to have an emergency fund in addition to money set aside to pay the mortgage in case these supplemental payments do not arrive as expected.
Questions about selling your family home in a Texas divorce? Contact the Law Office of Bryan Fagan
If you have any questions about the material that we have covered today please do not hesitate to contact the Law Office of Bryan Fagan. Our licensed family law attorneys offer free of charge consultations six days a week here in our office. We would be honored to sit down with you to go over your case and to answer any questions that you may have.
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Other Articles you may be interested in:
- Considering whether to move out of the home after a divorce is filed? Read this blog first
- Should I tell my spouse to move out of the home during a divorce?
- Do I have to move out of the marital home during a divorce in Spring, Texas?
- Whether you should move out of the marital home during a divorce?
- Steps To Take Before Moving Out of the Marital Residence During a Divorce in Spring, TX
- Can I move to another city before filing for divorce?
- The Dirty Trick of Filing for Divorce in Another City
- The Dirty Trick of Moving Out of State with the Kids
- Should I move out of the marital home during a divorce?
- Children's Passports and International Travel after Texas Divorce
- Can a Parent remove My Child from the state of Texas or from the County or Country where I am living?
- Geographic Restrictions in Child Visitation Orders in Texas
- Common Law Marriage and Texas Divorce Guide
- 6 things You Need to Know Before You File for Divorce in Texas
Law Office of Bryan Fagan, PLLC | Houston, Texas Divorce Lawyers
The Law Office of Bryan Fagan, PLLC routinely handles matters that affect children and families. If you have questions regarding divorce, it's important to speak with one of our Houston, TX Divorce Lawyers right away to protect your rights.
Our divorce lawyers in Houston TX are skilled at listening to your goals during this trying process and developing a strategy to meet those goals. Contact Law Office of Bryan Fagan, PLLC by calling (281) 810-9760 or submit your contact information in our online form. The Law Office of Bryan Fagan, PLLC handles Divorce cases in Houston, Texas, Cypress, Klein, Humble, Kingwood, Tomball, The Woodlands, Houston, the FM 1960 area, or surrounding areas, including Harris County, Montgomery County, Liberty County, Chambers County, Galveston County, Brazoria County, Fort Bend County and Waller County.