Equity and divorce: dividing the home
In general, Texas divides a divorcing couple’s existing property into two basic categories: community property and separate property. Under property division laws, individuals are able to retain separate property pursuant to a divorce. This might include property owned before the union, property that was a personal gift or an inheritance to one party during the union.
Once separate property is accounted for, the court will divide community property of the marriage among parties in a way that is fair. In allocating this division, the court might contemplate several factors, including business opportunities, education, age, income and the parties’ earning capacities.
What do divorcing couples do with the home?
One spouse owned the home prior to the marriage: If a spouse owned the family’s residence prior to the union, then the value of equity at the beginning of the marriage is considered that owner’s property. However, once the marriage continues, additional equity that accrues creates an equitable claim for reimbursement upon divorce under Texas law. The philosophy is that the couple utilizes community dollars that accrue during the marriage to pay down the separate property mortgage during the relationship. As a result, the community estate has expended funds to its detriment that benefits the separate estate of the property owner. Texas courts have the ability to take this into consideration at the time of divorce by ordering the spouse with the separate estate to reimburse the community estate for those expenditures.
The couple mutually holds ownership of the home: If the house was purchased during the marriage using 100% community funds then, assuming community equity exists at the time of divorce, the first step in splitting home equity would be to obtain an accurate evaluation of the home’s worth. The clearest indicator of a property’s value is the price that a willing buyer will pay. However, if neither side wants to sell the house then an estimate as to the property’s fair market value can be achieved through a formal appraisal. Many realtors also provide informal market assessments, which can give parties an estimate of the home’s value. However, an official appraisal is more accurate.
Once the market value is determined, there are several options for apportioning the equity on the home. If neither party desires to keep the home, dividing the equity proportionately subsequent to a sale could work. However, there are several other important considerations. For example, who will pay the mortgage, insurance and taxes while the sale is pending? Who will cover upkeep expenses? Moreover, will someone remain in the home pending the sale? These issues could affect a fair division of home equity.
If a spouse wants to retain the home, the remaining spouse can compensate the other party by forfeiting other community assets in the property division pool. In this case, the party who does not stay in the residence may get a bigger fraction of the other assets or may contribute less to the parties’ outstanding debt.
Ultimately, retaining a correct market assessment of a residence is step one in the property settlement process. If you are interested in deciphering how your property division process might unfold, contact an experienced family law attorney in your area.
This post was written by Goranson Bain.