Allen Markel, REALTOR® · Texas Premier Realty

Selling

Can I keep the house and buy out my spouse?

Answered by Allen Markel, REALTOR®, Texas Premier Realty ·

Short answer

Often yes, but it takes both a legal document and financing. In a divorce the court divides the estate as it deems just and right, and a spouse who keeps the homestead can owe the other spouse an amount that Texas law allows to be secured by a lien on the homestead (Tex. Const. Art. XVI, Sec. 50(a)(3)). If you want the other spouse's name off the loan, you generally need the lender's involvement, such as a refinance. Texas limits cash-out home equity loans to 80 percent of value. Involve your attorney and lender early.

Texas Family Code Sec. 7.001 has the court divide the estate in a just and right manner, and Sec. 7.006 lets spouses agree in writing on how to divide it. If one spouse is awarded the house, the decree or agreement can require that spouse to pay the other spouse's share. The Texas Constitution protects the homestead from forced sale but makes an exception for an owelty of partition imposed by court order or written agreement, including a debt of one spouse in favor of the other resulting from a division or an award of a homestead in a divorce proceeding (Art. XVI, Sec. 50(a)(3); Property Code Sec. 41.001(b)(4)). That is what allows a lien to secure the buy-out. The exact papers, a deed and a note or lien, are for your attorney to prepare.

Section 50(a)(4) also permits the refinance of a lien against a homestead. A written agreement between the spouses about the value used and the payment terms should be settled before the decree is signed, so the papers match the plan.

Two things usually need to line up. The first is the loan: if the house was bought with both spouses on the mortgage, the spouse who keeps the house typically has to qualify for a new loan alone or ask the lender about other options. Which options exist is up to the lender. The second is the amount: a buy-out is based on the value of the house less the mortgage, and the value should come from an appraisal or a market analysis you both accept.

If you take cash out of the homestead to pay your spouse, Texas Constitution Art. XVI, Sec. 50(a)(6) applies. Among its conditions, the principal amount plus other debts secured by the homestead may not exceed 80 percent of the homestead's fair market value on the date credit is extended, and it may not close before the 12th day after your application or the lender's notice.

I can provide the market analysis for both of you and estimate what your equity looks like at different values. Lenders and attorneys do the rest.

Common follow-up questions

Do I need an appraisal to buy out my spouse?

You need an agreed value. It can be an appraisal or a market analysis, and a lender will order its own appraisal for a refinance. Your attorney can advise on what the decree needs.

What is the 80 percent limit?

Texas Constitution Art. XVI, Sec. 50(a)(6)(B): a home equity loan's principal plus other debts secured by the homestead may not exceed 80 percent of its fair market value when the credit is extended.

What is an owelty lien?

It is a lien the Constitution allows on a homestead for a debt of one spouse to the other resulting from a division or award of the homestead in a divorce (Art. XVI, Sec. 50(a)(3)). Your attorney draws it up.

Sources

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