Property Ownership During and After Divorce-Handle with Care

Real estate transactions arising during, or resulting from, a pending divorce often involve high emotions, strained communications and unreliable cooperation between necessary parties. A full understanding of legal requirements in transferring title to a property in accordance with the couple’s negotiated agreement should help alleviate some anxiety as the transaction nears closing.
Whether buying, selling or retaining the family home or other property, a married person or couple finding themselves in the midst of a divorce are often besieged by unexpected issues and ramifications connected to the transaction. Problems arise due to Texas community property laws, homestead issues and recording requirements. However, a basic understanding of the following typical issues may help an affected party navigate through the process.

1. If one spouse desires to purchase a home prior to the finalization of his/her divorce, Texas community property rules come into play. Generally, a property purchased during marriage is presumed to be community property, owned by husband and wife. Since the divorce isn’t final, the new purchase would technically be owned by both spouses, even if the intent was for only one of the spouses to take title. While the ownership issue can be sorted out in the final divorce decree, until that time the buyer’s lender often requires the non-purchasing spouse to join in the execution of the deed of trust mortgage, to ensure that the lien is valid against any community property claim. The injection of the non-purchasing spouse into the transaction often leads to some difficult communication and negotiations, but typically cannot be avoided. Perhaps the best strategy is for both spouses to wait until the divorce is finalized before purchasing a new property.
2. Before a divorced person may sell their formerly jointly-owned home, they must first make sure that title to the property has been properly transferred from their ex-spouse. The first step is to ensure that the divorce decree contained proper language to divest the non-owning spouse from title. If the proper terms are included, then the divorce decree itself operates as a “muniment” of title; it passes title itself without the need for a deed from one spouse to another. However, even though the divorce decree has cleared up legal ownership, the real estate records must reflect the transfer to put the public on notice of the change. The owning spouse would have two choices; either file the divorce decree in the real property records, or obtain and file a separate deed from the ex-spouse to them. Obviously, since most folks would rather not have the terms of their divorce displayed so publicly, they would be much better served by having their ex-spouse convey title to them by deed. After the divorce is final, it may be extremely difficult to get any cooperation, so the parties should endeavor to get the deed signed along with the other final divorce documents.
3. Despite what you may hear from others, including family law attorneys, a spouse should require a full warranty deed from their ex-spouse, not a quitclaim deed. A quitclaim does not contain the necessary conveyance language to avoid future title insurance problems.
4. If a person enters into a marriage already owning property, and subsequently gets divorced, that property would typically remain separate property during, and after, the marriage. But to the extent community funds (such as salary and other income earned during the marriage) are used to pay the mortgage, taxes, insurance and other expenses, the non-owning spouse would have a right to partial reimbursement of those expenditures upon dissolution of the marriage. As a result, the property must often be sold, with the proceeds split according to the judge’s decision.
5. If the spouses agree that one partner shall be awarded sole ownership of the property after divorce, with an accompanying obligation to assume full responsibility for any current mortgage, the non-owning spouse is often owed money for the value of his or her relinquished interest. If that amount cannot be satisfied by other assets, then the non-owning spouse may agree to receive payments over time, or until the existing mortgage is paid off through a property sale or refinance. In either case, the transaction should be documented with an owelty deed, owelty note and owelty deed of trust. Failure to execute and file the proper owelty documents in this situation can lead to severe complications in enforcing payment rights or obtaining refinancing in the future.

Jeffrey A. Rattikin is an AV Pre-eminent rated attorney, Board -Certified in Residential Real Estate Law by the Texas Board of Legal Specialization. Mr. Rattikin has provided transactional legal services to clients across the State of Texas for over 28 years, emphasizing real estate, business and title law. Mr. Rattikin continues to define new legal frontiers through his incorporation of technology to enhance the attorney-client experience, as evidenced by his firm’s innovative websites www.rattikinlaw.com and www.texaslegaldocs.com.