There are three real estate mistakes commonly by married couples in the state of Texas. Being aware of them does not mean that you will divorce, but it does mean that if you ever do that you have a better understanding of your position when it comes to the division of property and assets in a divorce.
Living in a house does not equal ownership
Often, one of the spouses owned real estate prior to the marriage. And so, once married the other partner moves into the house and they live there as a married couple. People assume that just because they’ve lived in that house, that they have an ownership interest in it. That is the first of our real estate mistakes. But the truth is that if that house was purchased before marriage, then that house is actually going to be the separate property of the person who purchased it. And this applies, even in the instance that the house was purchased, say a month or even a week before marriage. If the inception of title happened before the marriage, then that house is actually considered separate property.
That means that if the house increased in value over the 20 years of the marriage, then the non-owning spouse does not get to share in that value. Now there are some reimbursement claims. These are equitable claims that can be made to recoup some of the cost of living in the house, but they’re very limited.
Reduction of principal payment
If you’re paying a mortgage every month, you’re paying down on that loan. So upon marriage let’s say a hundred thousand dollars was owed on the house and now you’re getting divorced and you have $50,000. That could be a $50,000 reimbursement claim. You’d be entitled to about half of that, right? To about $25,000. Now it’s important to note, that it’s not the whole mortgage payment.
So if you’re escrowing property taxes and insurance, it’s not going to include that or the interest. We’re only looking at the reduction of principle. Also, if you own that house and are doing capital improvements to it like adding a second story, converting the garage or putting in a pool, you may be able to recoup the increase in value. So it’s not the cost or what you paid for the improvements. It’s the increase in value. Now that is always challenging to prove because you’re going to have to have experts testify to the value. It is especially challenging to prove the increase in value when we’re talking about capital improvements that were done 10 years ago.
So if you are making capital improvements to a home that is actually owned by the other partner, you should keep really good records and maybe even have an appraisal done before and after the capital improvement was done.
I know that that’s not normal in the course of a marriage relationship – on the one hand putting in a pool for the family to enjoy and on the other bringing in appraisers just in the event that a divorce happens. But this is something you should be aware of and that it is good to know.
Refinancing Separate Property Owned By The Other Party
The second of the real estate mistakes married people make is refinancing a property that is owned by the other party. You know, if interest rates go down and you want to get a better deal, or you want to get some cash out to do something, it’s not uncommon for a married couple to refinance that note. What often happens is that in the refinance process, the partner who doesn’t own the house, sees their name on the deed of trust. And they think and may have even been led to believe, that their name has now been added to the deed. It has not been added to the deed. A deed of trust is a financing document. It’s evidence of the mortgage. It’s what allows the loan company to come and foreclose on the mortgage. So what happens is you’ve just added your name to a debt, a liability on a piece of property that you don’t own.
So think carefully, and maybe even get some legal advice, before refinancing a home that was owned by your partner before marriage to ensure that you don’t become obligated on debt for a property that you don’t own.
Failing to keep good records
The third mistake that people often make when it comes to owning a or living in a home owned by the other party is not keeping good records. We talked a little bit before about the reimbursement claim. So for that, you are going to need a copy of the mortgage statement from the month that you were married. Just keep that, scan it, and put it into files somewhere. And then if a divorce happens, we’re going to be looking at what’s owed on the property at the time of the divorce.
We also talked a little bit about how complicated the capital improvement claims can be to get approved. So to make that a bit easier, keep a file and record any capital improvements made during the marriage. Then at least it’s there if you ever need it.
And finally, the other area where record keeping is really important is in reinvesting the proceeds from the sale of separate property. Let’s say you own the house. You lived in it for the first couple of years of marriage, and then you sell it and you go and buy a new house. Well, the good news is, is that the new house will likely be community property purchased during the marriage.
You’re probably using some income that you both have earned during the marriage as the down payment. But if you’re reinvesting the sales proceeds from the separate property house, then you’ll want to have really good records on that. This is information that you will need should there ever be a separate property claim for that money. Let’s say you clear a $100,000 on the house that was owned before marriage, and that the $100,000 gets reinvested in the purchase of a new $300,000 home. The partner who put in the $100,000 would be entitled to get that back.
Clear records help make all of this super easy. And having this information helps you avoid making these real estate mistakes and make more empowered decisions during your marriage. Of course, if you have any questions and you want to talk with a lawyer about your assets, we would be happy to talk with you. We believe in helping people make informed decisions during marriage and during a divorce.