In most divorce cases, the parties’ most valuable asset—from both a financial and sentimental standpoint—is the marital residence. Accordingly, how the house is “divided” by the court is frequently a hotly contested issue. Like any other asset, a house can be community or separate property. Under the Texas Family Code, community property consists of the property, other than separate property, acquired by either spouse during the marriage. By contrast, separate property consists of: (1) the property owned or claimed by the spouse before marriage; (2) the property acquired by the spouse during marriage by gift, devise, or descent (devise or descent essentially means inheritance); and (3) recovery for personal injuries sustained by the spouse during marriage, except any recovery for loss of earning capacity during marriage.
Thus, if you enter into a contract for sale to purchase a house prior to marriage, the house is your separate property and cannot be awarded to your spouse. If the house is acquired during the marriage, it is considered a community asset, regardless of whether or not both spouses’ names are on the deed or note. In determining how the house will be divided, the court has two options. It can order that the house be sold and the proceeds divided between the parties on a percentage basis (generally 50-50 but it can be some other proportion) or it can award the house entirely to one party or the other.
There are no definitive criteria for determining who will be awarded the house. However, which party has primary custody of the children is one factor the court will consider. If mom has primary custody of the children, the court may award her the house to avoid uprooting the children. If the parties do not have children, then which spouse can afford the mortgage payment may influence the court’s decision. It is important to remember the being awarded the house generally (but not always) means being awarded the mortgage debt too. Moreover, regardless of who is awarded the house, the mortgage company will continue to hold both parties responsible for the debt. Thus, if one spouse is awarded the house and fails to make the mortgage payment, the mortgage company can continue to hold the other spouse liable for the debt.
If the house is foreclosed upon, the credit of both parties will be impacted. To address this issue, the court can require the party awarded the house to refinance the note solely in his or her name. If the spouse awarded the house is unable to refinance the note within a specified period of time (generally ninety days), the house will be sold and the proceeds divided in accordance with the terms of the final divorce decree. Often, however, a spouse awarded the house is capable of making the mortgage payment—perhaps with the assistance of child support, spousal maintenance or some other cash award from the divorce settlement—but is not capable of refinancing the note solely in his or her own name. In this instance, the parties can execute a special warranty deed in conjunction with a deed of trust to secure assumption.
The special warrant deed is signed by the spouse relinquishing title to the house (the grantor) and assigns all legal title to the house to the party receiving the house (the grantee). The grantee in turn executes a deed of trust to secure assumption and names the grantor as the beneficiary. If the grantee—again, the party receiving the house—defaults on the mortgage, then the grantor can foreclose on the house just like a bank or any other creditor. The deed of trust to secure assumption requires the grantee to assume the full liability for any debt on the property (without having to refinance), but give the grantor the ability to take over the payments to protect his interest in the event the grantee fails to make payments and, if necessary, foreclose on the property and sue the grantee for costs and attorney’s fees.