This is one of the most frequently asked questions I hear during divorce consultations.  The answer is much more complicated than a simple yes or no.  There are several questions that need to be answered first:

  1. Is the house community property or separate property?  If the house was purchased by either one of you before the date of the marriage, or if either one of you entered into the contract to purchase the house before marriage, then it is separate property.  If your spouse is the one who purchased it before marriage, you are almost certainly not going to be able to keep the house, no matter how long you have lived in it.  If you purchased the house during the marriage, then it is community property.  If the house is your separate property, you can almost certainly keep it (provided you can buy out any reimbursement claims your spouse may have).  If the house is community property, you may be able to keep it, depending on your answers to the following questions.
  2. How much equity is in the house?  It is very important to know how much equity is in the house.  This is determined by how much the house is worth minus how much is owed on the mortgage.  If you purchased the house a year ago with very little down, then there is probably very little equity in the home.  If you purchased it 20 years ago, the equity is probably significant.
  3. Can you afford to buy out your spouse’s share of the equity?  Most of the time, the community estate is going to be divided 50/50, so your spouse is probably entitled to 50% of the house.  That money does not necessarily have to come from the house, though.  For example, if the equity in the house is $100,000, you need to have $50,000 somewhere to put on your spouse’s side of the ledger.  Perhaps there is an investment account that has $50,000 in it that can be awarded to the spouse.  If there is not another $50,000 out there, can you cash out enough money on the refinance to buy out your spouse’s share?  If you cannot afford to buy our your spouse’s share of the equity one way or another, the odds are very slim you will be able to keep the house.
  4. Can you refinance the mortgage into your own name?  In order to keep the house, if the mortgage is not solely in your name, you would have to be able to refinance it into your own name within a certain period of time.  I normally see anywhere from 90 days to 6 months after the date of divorce, although in certain rare situations I have seen parties agree to a longer period of time.  If your income is not sufficient to qualify for the refinance on your own, you will not be able to keep the house.  If you have been a stay-at-home parent, even if you recently started a job, you will most likely not have a long enough work history to qualify to refinance within the necessary amount of time.
  5. Can you afford to pay the mortgage on your own?  I always recommend against including expected child support in the budget when trying to determine if you can afford the house.  Too many people fail to pay child support in a timely fashion, and the child support could be modified down the road for a variety of reasons.

In the majority of cases, I see divorcing couples selling the house.   Sometimes, parties sell the house because everyone wants a fresh start.  Sometimes parties sell the house based on the answers to the questions above.

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When a couple divorces, one of the key issues is determining how property and debt should be divided. Often, one spouse or the other has handled the finances in the family and the other spouse has little or no idea what assets and debts actually exist.  In the vast majority of divorce cases, we will have the parties exchange what is known as a sworn inventory and appraisement.  Sometimes you will hear this referred to as an “inventory” or an “I&A.”

An I&A is a super long form that lists out all the assets and all the debts for the community estate and each party’s separate estate.  The list includes everything from real estate to retirement plans to jewelry to airline miles and everything in between.  It also includes all types of debts, such as mortgages, car loans, student loans, and credit card debt.  For most people, many sections on the list will not apply.

An I&A is more than just a list.  It details how much the asset (or debt) is worth on a given date, how much it was worth at the time of marriage (if it existed then), identifying information for an account, the nature of the account, etc.  Often we will have the parties included supporting documents to backup the information on the inventory.  This could include the most recent statement, a current snapshot of an account, an appraisal, etc.

Each party will swear that the I&A is accurate to the best of his or her knowledge before a notary, and then the attorneys will exchange them.  Because the inventories are usually very long,  I then take the information from both inventories and put it into an excel chart.  This allows everyone to easily compare the inventories and easily move assets or debts into different columns for dividing the estate.

Child Support

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Texas is a community property state, and there is a presumption that ALL property in the name of either party at the time of divorce is community property.  Certain types of property are classified as separate property, specifically any property owned before the marriage or any property received by inheritance or gift during the marriage.  The big problem here is proving the amount and existence of the property as separate.

For example, Husband had several 401(k)s from employers he had before the marriage.  At some point during the marriage, he rolled the 401(k)s into a new account.  He is able to show the creation of the account during the marriage and that the funds came from these other accounts.  The only way the husband can show by clear and convincing evidence that the money in the account is his separate property is to produce statements from right before the marriage and trace those accounts to their current location.  If the account has been rolled over and there is no paperwork from the prior account, this can be very difficult to do.   Husband would have a much more difficult time in this scenario if he had rolled the separate property accounts into an account co-mingled with community property.  Establishing what is separate and what is community in a co-mingled account can be extremely difficult.

If you happen to receive separate property during the marriage, either by inheritance or gift, it is advisable to keep that property in its own, separate account.  Once you co-mingle the funds, it can be hard to prove which funds were separate and which funds were community, especially if some funds have been spent or moved around.  It is also critical to keep records reflecting where the separate funds came from so you can prove that money is, in fact, your separate property.

Although very few people expect to get divorced, the bottom line is that many people find themselves in that situation some day.  The moral of the story is to keep records of separate property accounts going all the way back to before the marriage or to the date you received the separate property.

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When a retirement account is split in a divorce action, you must have a Qualified Domestic Relations Order (“QDRO”) signed by the Court.  QDROs must meet certain specific requirements set out by federal statute.  If your case will involve a QDRO, it is highly recommended that you have an attorney.  An improperly prepared QDRO will be rejected by the retirement plan administrator.

When a QDRO is required in a case, I ask clients to request sample QDRO language from their plan administrator.  Most plans have either sample language or guidelines for QDROs that they will provide.   The QDRO will specify either a percentage or a dollar amount that is going to the soon-to-be-ex-spouse, along with a division date.  Even though the account will not be technically split until a later date, the date listed in the QDRO will be used by the plan to determine the appropriate amount for each party.

Once the QDRO is accepted by the plan administrator, the plan is essentially split in two.  The alternate payee (ie: the person who did not originally own the account) will be given several options.  He or she can generally (a) cash out his or her share, taking on any tax consequences of doing so, (b) leave the money in the new account that has just been created by the plan, or (c) roll the money over into another retirement account.  I recommend that clients speak with a financial adviser and/or accountant before choosing which option is best in his or her situation.

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In most Texas divorce cases, each party will complete a sworn inventory and appraisement and exchange it with the other side.  These inventories are generally quite helpful when it comes to dividing property and debt, especially in cases where one spouse has controlled the majority of the finances in the marriage.  In some cases, the inventory and appraisement leads to additional discovery requests where one side wants backup documentation in support of certain items listed on the inventory.  The benefit here is that the inventory usually allows discovery requests to be narrowed down to only very relevant documents.

When a client needs to complete an inventory and appraisement, I send them a blank form to complete.  It lists every imaginable asset and debt that either of the parties could have.  I tell clients to simply delete any sections that are not relevant to them so the document is easier to get through.  The inventory will include everything from real property to bank and retirement accounts to frequent flyer miles to firearms and artwork.  The party will also list a value for each item of property, along with a date for the valuation.  The inventory also includes itemized descriptions of debts, such as credit cards, student loans, mortgages, etc.  After the form has been completed and reviewed by an attorney, it must be sworn to and notarized.

In my experience, most attorneys will voluntarily agree to exchange an inventory and appraisement.  If the other side will not agree, a judge will almost universally order the parties to complete an inventory and appraisement by a certain date upon request.

Child Support

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When a married couple owns a house, dealing with the house is a very important aspect of the divorce.  The first question is whether or not either spouse can afford to keep the house on his or her own.  If not, then the house must be sold.  If the parties are in agreement, the house can be sold while the divorce is pending and the proceeds split as part of the division of the estate.

If the parties are not in agreement about selling the house, either side can request that the court order the sale of the house.  Normally, the parties will have a certain amount of time to sell the house after the divorce is finalized.  If they cannot agree on a sales price or there are other issues with the sale, a receiver may be appointed to help finalize the sale of the property.

If one spouse is keeping the house, the other would want to ensure that the spouse keeping the house refinanced the property into his or her own name within a certain amount of time after the divorce is finalized.  If the house cannot be refinanced, the house should be sold.  I would never recommend that a client allow the other party to keep a house without having my client’s name removed from the mortgage for two reasons.  One, if the spouse who kept the house fails to make the mortgage payments, the other spouse’s credit will be damaged.  Two, the spouse who did not keep the house may be prevented from buying his or her own house in the future due to the large mortgage debt still in his or her name.

Once the spouse keeping the house has it refinanced into his or her own name, the other spouse would need to deed over his or her interest in the house.  I usually do this with a Quitclaim Deed, but there are other options as well.

If a house is involved in a divorce, I highly recommend having an attorney to make sure that everything is handled properly.  You cannot change a decree years down the road if you made a mistake in how the house was dealt with in the decree.  I have seen this destroy people’s ability to move on with their lives.  It is well worth the cost to ensure it is done right.

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