Agreed divorces, often called uncontested divorces or no contest divorces, are divorces in which the parties have agreed to the major terms of the divorce. One of the major terms in many divorces is how to deal with the real estate owned between the spouses.
In Texas approximately two-thirds of the population owns the home where they live. We divorce attorneys see a large number of Texas divorces in which the family court addresses home ownership. Dividing homes and other real estate in a divorce is difficult.
Homeowners often have mortgages against their homes that they must address in a divorce. The mortgage assigns the creditor rights against the parties and hold a lien against the home. This is a particular problem for any divorce whether it is agreed or contested. Having a divorce attorney on your side to advise you on these issues can add value to your agreed divorce.
Dividing real estate in Texas uncontested divorces
Dividing homes in a divorce can be difficult because the parties do not understand the obligations of the mortgage. On one hand the homeowners have property rights to the home. On the other hand the creditor has the right to collect against its debt secured by the lien.
A divorce can affect the homeowners property rights but not the rights of the creditor. A creditor cannot lose its rights to collect on a debt by a divorce (unless the creditor happens to be one of the spouses) no matter how the divorce addresses the home.
The only two ways a creditor will lose its rights to enforce the mortgage debt against the parties and against the home are (1) the mortgage is paid off or (2) the mortgage is refinanced into a new debt with new rights.
The parties must deal with creditor’s rights when dividing the home in the divorce or risk financial problems down the road. For example, if the ex-wife gives up the home to the ex-husband but both names are on the mortgage and the ex-husband stops paying on the mortgage the lender can still come after both ex-husband and ex-wife regardless of the division of property ownership.
That could ruin ex-wife’s credit and potentially result in a civil judgment against her. That is not a very good result. Sometimes the spouse taking the house cannot qualify for refinancing. The supposed simplicity of the agreed divorce is somewhat lost at that point.
Solutions to divide real estate in a Texas uncontested divorce
There are a number of solutions available to address the home or other real estate in the divorce. None of the available solutions are easy fits for all situations. What is best in one agreed divorce may be wrong for the next. Some of these options may be a solution but not the best solution for the parties. This is where a divorce attorney can help determine what approach is best for the particular situation. Consider these options:
1. Sell the home before the divorce. By selling the home the owners hopefully pay off the mortgage and can walk away with whatever equity remains. This satisfies the debt so it is a complete solution. However, that assumes the home can sell and the selling price will not put the home underwater. It also assumes neither party wants the home and both parties are willing to wait until the home sells. Those are not always the case.
2. Obligate selling the home as part of the divorce decree. Sometimes the home remains in the divorce but with orders to sell it under certain conditions. This avoids the problem of waiting to divorce until the house sells. On the other hand it keeps both parties on the hook for the house until it sells. If the conditions in the decree fail then a whole new set of problems arises.
3. Refinance the mortgage solely in the name of whoever keeps the house. If one of the spouses keeps the house then it is common to refinance in that person’s name. This releases the other party from continued liability under the mortgage. That’s great if he or she refinances the mortgage. If the spouse taking the home cannot qualify for a mortgage then this option does not work.
4. Let one spouse take the home and pay the mortgage. Sometimes one spouse wants the home and cannot qualify for refinancing. This works as long as the spouse with the home pays the mortgage. This can actually benefit the spouse who does not take the home by having the mortgage payments appear positively on his or her credit report. When the mortgage payments do not occur the lender can ruin both parties credit reports and seek payment from both.
5. Liquidate other assets to pay off the home. This works if there are assets available to liquidate in a fair manner.
6. Some combination of these options. Sometimes dealing with the home and mortgage requires a combination of acts to reach a fair solution. The parties may need to liquidate assets to pay down the mortgage so one spouse can qualify for a refinance. This works if the flexibility to employ multiple options are available.