A common issue in most divorce cases is what to do with the marital residence. If the parties rent their residence this is not a big issue, but in most divorce cases there will be owned real estate that must be dealt with.
Two Most Common Ways to Handle
While every case is different and there are many unique and unusual sets of circumstances, for most cases there are only two realistic divorce outcomes when it comes to the house. Either the house gets sold and the proceeds from the sale split (usually on some percentage basis) or either the husband or the wife is awarded the house along with the debt attached to the house.
What About the Equity?
When one spouse is awarded a house that has significant equity the other spouse will want an offset from some other asset. As a simple example, let’s say a couple has a house with $100,000 in equity and their only other asset is a 401k account in husband’s name worth $100,000. If wife was awarded the house and husband was awarded the entire 401k account, it would be a 50/50 division. If instead neither party wanted the house and they put it on the market they could then split the net proceeds from the sale of the house 50/50 and also split the 401k 50/50. That would also be a 50/50 division.
What Real Estate Documents are Used to Transfer the House?
If instead of selling one spouse is awarded the house then in a typical case this requires just two real estate transfer documents. These should normally be done at the time of divorce along with the Divorce Decree and other transfer documents. The first document is a “Special Warranty Deed.” This document is signed by the spouse who is not getting the house and in effect it says that the other spouse is now the 100% owner of the house (subject to the debt secured by the house).
The second document is a “Deed of Trust to Secure Assumption.” This document is signed by the spouse who is getting the house and in effect it is that party’s promise to pay the existing mortgage in a timely fashion. If the party who receives the house falls behind on the mortgage payments or in any way defaults on the mortgage, the Deed of Trust to Secure Assumption gives the other party certain recourse against them. The details of that potential recourse are spelled out in the language of the Deed of Trust to Secure Assumption.
Divorce Transfer Does Not Remove Name from Mortgage
One important issue that is often misunderstood concerns the existing mortgage. In the scenario described above, the mortgage that is held in both parties names stays in both parties’ names, even after divorce. Parties sometimes assume that because they have agreed for one party to solely assume responsibility for the mortgage that this agreement is binding on the lender and all they need to do is call the mortgage company to get the name changed on the account. Not so. The lender will always refuse to do so.
The only way the other party will be relieved of that liability is if the mortage is paid off, either by refinancing it or by selling the property. In other words, the debt will remain on the credit report of the non-owning spouse until the debt is paid off. If the owning spouse goes into foreclosure then that will impact the credit of not only the owning spouse but also the non-owning spouse.
The bottom line is that if your spouse is being awarded the house in your divorce case, it is very much preferable if at all possible to have them refinance the property in their own name. Usually the refinancing can happen prior to divorce (or at least pre-approval obtained prior to divorce) or within a set deadline that is included as a term of the Decree.
I hope this helps clarify the issues surrounding how to deal with a house in a divorce case. If you have questions or comments please feel free to share them below.
In this article I will explain the key points in Texas posts-divorce alimony. Please note that alimony is a particularly complicated area and you should consult with a qualified family law attorney about the specifics of your case if you believe you may be entitled to receive or possibly obligated to pay alimony. Also, this post addresses only post-divorce alimony, not temporary alimony.
Contractual Alimony or Spousal Maintenance under Texas Family Code Chapter 8
Texas divorce decrees frequently include provisions for periodic post-divorce payments from one spouse to the other, aside from the more common child-support payments. In general, these payments are based upon the needs of one spouse and the ability to pay of the other. Alimony agreements or orders generally come in one of two forms, either agreed contractual alimony or court ordered spousal maintenance under Texas Family Code Chapter 8.
When the parties reach an agreement for post-divorce alimony payments it is typically structured as contractual alimony. Since this form of alimony is based on an agreement and not a statute there are no restrictions on the amount of the support or the duration, other than those agreed to by the parties. However, the statutory maximums on amount and duration are normally factors considered in the negotiations.
Court Ordered Spousal Maintenance
Chapter 8 of the Texas Family Code provides the court with the authority to order post-divorce spousal maintenance when the marriage has lasted at least 10 years and other requirements are met. Additionally, there is the possibility of spousal maintenance in a marriage shorter than 10 years in certain cases involving family violence. Unless there is a disability of either the party or a child of the parties, the spouse seeking maintenance must prove that he/she is unable to “provide for the spouses minimum reasonable needs.”
Maximum Amount of Maintenance under Statute
Section 8.055 provides that the amount of maintenance the court may order is the lesser of a) $5000/month or b) 20% of the monthly payor’ gross monthly income. Again, it is possible for the parties to agree to an amount higher than the statutory cap but this rarely happens because the caps are factored into the negotiations. In other words, parties rarely agree to what would be worse than there worst-case scenario. It should be noted that the current maximum amount since the 2011 statutory amendment is double the previous maximum of $2500 per month under the old statute.
Duration of Spousal Maintenance under Statute
Section 8.054 provides details on the duration of the spousal maintenance order. For marriages that lasted more than 10 years but less than 20 the maximum duration is five years. If the marriage lasted more than 20 years but less than 30, the maximum is seven years. For marriages lasting more than 30 years, the maximum is 10 years. For cases involving a disability, there is no maximum duration under the statute.
In high net worth or high income divorce cases, alimony is a potential consideration. If this may be an issue in your case, you should definitely consult with a qualified family law attorney about the issue. If you have questions or comments about contractual alimony or post-divorce alimony in Texas please leave your comments below.
I came across a thought-provoking article by Pamela Cytrynbaum on psychologytoday.com, entitled Top 10 Tips for a Great Divorce. It gives her suggestions on how to turn an amicable separation into an amicable divorce. I mostly agree with what she suggests, although I have different thoughts on a few of the issues. I encourage you to check out the article. Here are my thoughts on some of her tips that I took issue with:
Her Tip #2 – Lawyers Prepare for the Worst. Mediators Bring out Your Best.
The author encourages people to not hire lawyers but instead go to a neutral mediator to settle their case. This is an issue that I have been asked about from time to time. The motivation behind this idea is a good one, that is to try and resolve the divorce without ugliness. The problem is that the issues are simply too complicated to address without legal advice. If you are the spouse who has less information about the finances (or simply are missing financial information about accounts and your spouse’s name), then following this advice could lead to a disastrous result for you.
MY ADVICE – Hire a good lawyer with the instruction that they try to resolve the case fairly but in the early stages if at all possible.
Her Tips #5 – Agree on How to Disagree and #6 – Timeouts: Outline Clear and Effective Consequences
On these two tips the author recommends that the agreement be clear on how to handle issues that might arise in the future (she gives as examples if one party relocates or remarries) and what the consequences are for violating the agreement. Again, in principle these are great ideas. However, unless you have the experience of a good family law attorney in your jurisdiction who knows the law on these particular issues and can draft the language so that it is enforceable, it is very unlikely you’re going to be able to effectively deal with these issues.
MY ADVICE – Again, you need a good attorney to assist you with the key issues in the case and to put the agreement in a language that courts will enforce later if necessary.
Most of the rest of Ms.Cytrynbaum’s tips are great and people would do well to follow them. For example, she encourages the parties to occasionally get together with the children and have dinner as a family. I think this is a wonderful idea and when this is possible it would be a very positive thing for your children to experience.
She also discourages people from introducing any new boyfriends or girlfriends to the children until long after the divorce is final. I agree that this can be a damaging and traumatic thing for children if it happens too soon after the divorce.
Overall, it was a very interesting read and I think a lot of people could benefit from following her advice, except for the tips described above that I have issue with. Take a look at the article and let me know your thoughts in the comments section below. I’ll be interested to hear your thoughts.