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Does refinancing a home change ownership of it in relation to a Texas divorce?

Family courts in Texas divorce cases are likely to hold that just because your home was refinanced during the court of your marriage, that does not mean that the house will become a part of the community estate when it formerly was your separate property. This situation could arise if you purchased a home prior to your marriage and took out a mortgage in your name only. Eventually you got married and decided to refinance the home. The new mortgage bears the name of you and your spouse. This would not change the separate property nature of the home. 

However, you need to be aware that the concept of reimbursement would come into play here. For instance, in the event that you and your spouse were to get divorced your spouse would likely be able to make a claim that because community property funds were used to pay the mortgage on your separate property home that she is now owed a reimbursement of her portion of that money. 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 go through a hypothetical situation in order to illustrate a point I would like to make 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. Subsequent to this you get married to this woman. Ten years later you and your wife are on the road to a divorce. Do you think that the home purchased in your name before the divorce would be determined to be your separate property?

I think it is likely that the home would be found to be jointly owned separate property under this scenario. You should not assume that the house will be separate property alone just because it was purchased before the time of your marriage. There are circumstances that can cloud the waters associated with jointly owned separate property that could come into play and impact your case. 

Even if a refinance were to occur in your name alone, there is case law in Texas that would suggest if you and your spouse had an agreement to own that home jointly based on the refinance that it could qualify as being jointly owned separate property of yours. 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, but you and I are here to talk about what happens with property that you own which 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. Imagine a scenario where your aunt gifted a house to you and your spouse before she left the country to retire abroad. 

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 put money down to assist in the closing, paid for improvements and paid the mortgage then that property would likely be jointly held separate property if you were to subsequently get divorced. 

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 can’t see a result occurring in a divorce trial that does not end up having the house getting sold and the equity split between you and your spouse. This is an imperfect solution for many people in your position but the judge’s options are limited. 

However, the great thing about getting divorced in this day and age is that you and your spouse are capable of coming up with your own solutions to these problems. 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. That way one of you could be awarded the home and the other could walk away with money. If getting cash to buy your spouse out of their ownership share would be an issue for you, a similarly valued portion of the community estate could be substituted. If your community estate is rather small and property like this were not available it would likely be the case that a refinance of the mortgage would need to occur and cash would need to be made available from that process. 

How a home can be valued in a Texas divorce

Once it is established, either by agreement of the spouses or by order of the judge, that a home is to be sold in a divorce you would then need to figure out what the value of the house is. Folks who work in real estate will tell you that the price you set the house for sale for initially will determine so much of the return you get on the home. If you set the price too high you will end up having to either significantly reduce the asking price which typically does not help the sale. Or, the home may have to be re-listed if it goes too long on the market without being purchased. 

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.

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 name the house as separate property and be done with the subject since he cannot take away ownership in any property owned by your or your spouse as separate property. 

Next, the judge could award the home to you or your spouse. That means the house is community property but would be awarded to either of you based on the facts and circumstances of your case. If not awarded to either of you individually, the house could be sold if that is found to be fair. If the real estate is in the country or in a rural setting the judge could divide up the acreage in some form or fashion. This wouldn’t work for a house in a Houston suburb but may work well if the property in question is located out in the rural areas of Harris County. 

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

If you have a mortgage on your home and are going through a divorce you should head back to 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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