Originally published by The Law Office of Bryan Fagan, PLLC Blog.
Once you have hired a licensed real estate appraiser, real estate agent or done a comparable home search on the county appraisal website to determine a likely value for your home, you have done most of the work that is related to value your house for the purpose of selling it. The next thing you to do is consider whether or not you need to remove “incidental” costs associated with the sale of the home from that appraised value.
Incidental costs are things like closing costs and realtor fees. From my experience, these costs are way too speculative to include in the value of the house. Closing costs vary across properties and title companies. There are no specific cases that I am aware of in Texas that say one way or the other how this subject is to be treated. However, I would be willing to argue based on the previous couple points I made that they should not be deducted from the appraised value of the home.
Fair market value is what you are going after when looking for the value of your family home
Anyone of us who took high school economics is likely familiar with the term “fair market value.” This term can be defined as the amount that would be paid in cash by a willing buyer who desires to buy but is not required to buy, to a willing seller who desires to sell but is no under no necessity of selling. That definition is one that is pulled from something called the Texas Pattern Jury Charge. There is no mention of realtor charges or closing costs in that definition. Closing costs vary from transaction to transaction. Realtor costs may not even come into being if a realtor is not used or if the house is never actually sold.
Reimbursement claims and the family home
This is a subject that is near and dear to the heart of almost every person who goes through a divorce. Reimbursement claims can be a difficult subject to explain to clients because it is a concept that tugs at concepts of “fairness” and “equity.” If you contributed income to the separate property of your spouse, in a divorce you have a right to be reimbursed for those monies. However, it can be very difficult to calculate those kinds of claims.
There is nothing in the Texas Family Code that instructs a family court judge on how to calculate to proceed on a reimbursement claim made in conjunction with a divorce case. The judge has full discretion on determining how much reimbursement to award to a petitioning spouse or even whether or not to acknowledge the claim.
For instance, if your spouse has a separate property home with a mortgage on it that has been paid during the course of your marriage then you are in a position where you will need to prove how much of the principal of that mortgage has been reduced during the course of your marriage in order to proceed with a reimbursement claim. Mortgage statements pulled from the internet or requested directly from your lender are a means to do so. Many websites have amortization schedules that show how much of each mortgage payment goes towards principal, interest and escrow funds. Tax returns that show mortgage payments as well.
Finally, another relatively common reimbursement claim that we see in divorce cases is when community money is used to make improvements on a separate property home. An example could be if your spouse and you used your combined incomes to make an improvement on a home that you owned before you two got married. The value of your reimbursement claim would be how much the value of the home increased due to the improvements that were made.
As you could probably guess based on the time we devoted in yesterday and today’s blog posts to determining how to value your family home, this can be quite a difficult job. It is not readily apparent how much a new kitchen, pool, updated bathroom or solar panels on the roof actually added value to the home. A real estate agent can serve as an expert witness in this capacity if it were an issue brought up at trial.
How can your family home be divided in your divorce?
There are many options available to a judge when it comes to dividing up your family home in a divorce. Keep in mind that these options are only available to a judge if you and your spouse cannot come to an agreement on your own when it comes to valuing the home and then either dividing it in a sale or allowing one of you to remain in the home while the other has their community property interest bought out.
Option number one is the clearest cut and simple for a judge: he or she would simply determine that the home is the separate property of either you or your spouse. No muss, no fuss. Next, the house could be awarded to either you or your spouse. Along with this option, the judge could award you the house but allow your spouse to reside in the home for a specific period of time after the divorce. This option could be chosen in the event that your spouse showed that it would be difficult to locate suitable housing quickly after the divorce.
For those of you who reside in rural areas, your real estate could be partitioned by the judge. For instance, consider that if you were awarded the home, your spouse could be awarded the majority of the land surrounding the home to compensate him for the loss he would take in his community property interest in that residence.
Finally, your house could be ordered to be sold and the equity (after closing costs and realtor fees) would be split between you and your spouse based on a percentage.
What happens with the mortgage on your home after a divorce?
This is a very relevant subject to discuss in conjunction with a divorce case. Most of us reading this blog post live in a suburban/urban environment in a single family home. Whether or not you would consider your immediate surroundings to be a neighborhood or not, it is likely that you and your spouse own a home in a neighborhood-type environment where the mortgage on that home bears both your name and that of your spouse. What many attorneys fail to do in connection with a divorce is properly explain what can happen with the mortgage once your divorce is over with. I will seek to provide you with some clarification on this subject so you enter your own divorce with a bit more knowledge.
Let’s say, for example, that your spouse is awarded the family home in your divorce case. He is also ordered to pay the mortgage going forward- a mortgage that has both of your names on it. Here is what I would tell you if you were represented by our office. First, the divorce decree is a legal document that is binding upon you and your spouse but it does not affect your personal obligation under the mortgage contract. If you’re soon to be ex-spouse fails to make payments on time for the mortgage then your credit score gets dinged.
Next, if you do well in the financial portions of your divorce and have a down payment ready to go for your next house you may have trouble qualifying for a mortgage. The reason for this is that your name is already on a mortgage to your former home. Your debt to income ratio will be skewed as a result of your technically owing money on another home. It is theoretically possible to not be able to qualify for a mortgage on your new house if your spouse is not current on payments on the “old” mortgage.
How can you get your name off the joint mortgage to your old house?
That discussion should lead you to ask the question of how, then, can you go about removing your name from the old mortgage to your former home?
One option that I have seen implemented in a final decree of divorce (the final orders for a divorce case in Texas) would be to order your spouse to refinance the home within X number of days from the date the divorce becomes final. No refinance is possible until the divorce is finalized since ownership of the home before that time is still in both your name and his. It is possible that your spouse, while able to be awarded the home in your divorce, does not qualify financially to be able to refinance the mortgage into their own name. A low income, low credit score, bad debt to income ratio or a combination of all of those factors could play into the reason why this is the case.
Another option to pursue could be that your spouse can sign documents that cause him to assume complete responsibility for the mortgage moving forward. The availability of this option depends on your lender. Your spouse should contact the mortgage lender as soon as he becomes aware that he is going to get the house in your divorce to see if this is an option that he can pursue. Again, however, your spouse needs to show that he can qualify for the process of assuming sole responsibility on the mortgage.
If neither of these two options is available then the home will likely be ordered to be sold by the judge. Most judges will not put you or your spouse in a position to fall behind in the mortgage payment and put both of you in a bad financial position. As a result, if no suitable arrangement can be made it is very likely that a sale of your home will commence.
Pulling equity out of your family home in a Texas divorce
Selling the home is by far the easiest method of pulling equity out of your home during a divorce. The equity can then be split between you and your spouse without much fuss, according to the terms of the judge’s orders or your mediated settlement agreement. Usually, if your spouse is awarded the home in your divorce then the equity can be pulled out in the following manners.
If your spouse gets the house, then you will be awarded a community property asset that equals the share of equity that would ordinarily be yours had the house been sold. Or, if there is insufficient community property to divide you may be able to get some portion of your spouse’s community property share as well as a separate property bank account of your spouse’s.
We will discuss the additional ways to cash out the equity stake in a family home in tomorrow’s blog post. We hope that you have enjoyed today’s blog and we will return tomorrow to finish up where we left off by talking more about cashing out equity in the family home.
Questions about divorce and dividing up the family home? Contact the Law Office of Bryan Fagan
The attorneys with the Law Office of Bryan Fagan stand ready to assist you with any questions or concerns you have regarding your Texas family law case. Our attorneys have represented clients in every family court in southeast Texas and we do so with a great deal of pride.
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