Division of home equity in a Texas divorce as real estate rebounds
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Increasing equity in homes is allowing more unhappy couples to now divorce. The real estate market is finally recovering. In Austin, the median price of a home is eight percent higher than at this same time last year.
During the recession as house values dropped, many couples stayed together because neither could afford the property on their own and they weren’t able to sell for more than they owed. No one wanted to deal with the house or go through a short sale. Higher home prices now allow a couple to sell a home that is too large for either and use equity from the sale to obtain new housing.
Valuation of a property
Obtaining an accurate value of a home is necessary during property division negotiations. If one spouse wants to keep the home, it is important to determine an accurate market value. When one spouse would like to stay in the home, paying for an appraisal will provide the most accurate picture. Realtors will provide free market assessments, which will give the couple an idea of the range of market values, but an appraisal will be much more detailed and more accurate.
Various options exist for apportioning equity. If neither spouse wants to keep the home, dividing the equity proportionately following a sale might be appropriate. However, it is important to address who will pay the mortgage, tax bills, insurance and upkeep while a sale is pending, and to decide who will remain in the home (if anyone), and how price reductions will be addressed pending sale. All of this could also affect equity division.
What happens when one spouse wants to keep the home? An appraisal will determine the market value, and then the spouse who will keep the home will essentially “buy-out” the other spouse by giving up other assets. Thus, the spouse who does not stay in the home may receive a larger portion of the retirement accounts or another asset, or may pay less of the couples’ outstanding debt.
Tracing any separate interest in a home
Texas courts divide property into two categories – community and separate. Division of community property requires a review of what is “just and right.” The court may consider factors such as education, business opportunities, age and income and earnings capacity. Separate property, on the other hand, is not divided and includes the following:
- Property owned before the marriage
- A gift or inheritance to one of the spouses during the marriage
- Certain portions of personal injury proceeds
If one of the spouses owned a home before the marriage, then the equity at the time of the marriage is separate. As the couple uses community funds to pay the mortgage and remodel the home, increases in value are likely considered community. The increase in value due solely to a general increase in real estate prices would be separate. This example illustrates the complexities of Texas property division.
Obtaining a correct valuation of a home and tracing any separate funds are important to receiving a fair and equitable property settlement. An experienced family law attorney can provide more information based on your individual circumstances.
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