For many couples, the marital residence is often their most significant asset. Consequently, questions concerning the future of the house are routinely front of mind for our clients. While courts may choose from a number of options when disposing of the marital residence, if it is possible courts typically prefer to have one spouse keep the house as their sole property, with the other spouse receiving a “credit” or reimbursement for the value of his or her share. If both spouses would be unable to afford the house on their own or if they agree to do so, courts often have the house be sold and divide the net sale proceeds between the spouses. For this reason, the valuation of the property, and the identification of any supplemental contributions or improvements to the property by the spouses, are crucial.
Marital Property Basics
Texas recognizes two types of marital property: community property and separate property. Separate property is property that was (1) owned prior to the marriage; (2) acquired by gift, devise, or descent; or (3) recovered for certain personal injuries claims arising during the marriage. Community property is all property that is not the spouses’ separate property. While these basic rules answer a majority of characterization questions, complications can, and often do, arise. Once all assets and liabilities are characterized as either separate or community property, the court will divide the community property in a “just and right” manner.
Reimbursement for Contributions to the Marital Residence
The high cost of housing causes most homeowners to finance the purchase with a mortgage held by a lender. In an effort to reduce the total cost of home ownership, many homeowners supplement their mortgage payments when possible. These contributions often occur as an increased down payment or through supplemental payments the term of the mortgage.
But what about contributions that were made from a spouse’s separate property? In those cases, the contributing spouse may be entitled to a reimbursement claim from the community estate for either the value of the contribution or a percentage of the property’s overall value.
Separate Property Down Payments
Where a down payment on the marital residence was provided by a spouse’s separate property, the contributing spouse may be entitled to a separate property share of the house’s value in proportion to the value of the contribution. For example, suppose a newly-wed couple purchased a $300,000 home in Austin, with a $50,000 down payment paid for entirely by the wife’s separate property. The couple then paid off the mortgage with their community property. The home is now worth $500,000. In this example, the wife would be awarded one-sixth ($83,333) of the home’s current value as her separate property in addition to her 50% share of the remaining community property interest in the home ($208,333), for a grand total of roughly $291,666.
Of course, the example above is meant only to demonstrate a principle used by courts when dividing property. In reality, many other factors may also have a bearing on a court’s determination in your specific case.
If you or your spouse are considering a divorce and you are concerned about the division of your property, please contact us for more information.