The divorce process can make real estate even more complicated. Our goal is to provide the answers to common questions when you are going through Divorce. Such as how does a home buyout work in a divorce and, what is my house worth?

We are local Houston Real Estate Agents that specialize in divorce.  Our mission is to help you understand if you can keep the house or should sell it? We can walk you through the questions, like, Can I Buy out my spouse's Equity or What happens to the House During Divorce? 

There are several options that spouses need to consider when deciding on what to do with the family house. Read Who Gets The House in a Divorce in Texas?

One of the most powerful tools to help "buy out" your spouse is what is called an Owelty Lien. 

Use our Divorce Buyout calculator to help determine what your situation looks like after fees,  so you can see how much equity remains to split for all three scenarios and determine which option is best for you.  Before you go to mediation and write up the divorce buyout agreement form, you can use this calculator to determine how much equity there is in the house. Knowing your options will help you make an informed decision because we believe knowledge is power. Then you can know for sure the answer to the question we get asked all the time, "How do I buy out a house from a spouse?" 

An Owelty lien is "a lien created or a pecuniary sum paid by order of the court to effect an equitable partition of property (as in divorce) when such a partition in kind would be impossible, impracticable, or prejudicial to one of the parties". 

This type of loan can also be used for probate, where multiple children are gifted a house or land after their parents have passed on. An owelty lien is a tool to utilize when the equity of a home needs to be split. 

Owelty liens are a type of deed that allows divorcing couples to divide the existing equity in the marital home. This action is commonly utilized in divorces to “buy out” the remaining spouses’ interest in a home. Owelty lien in Texas can be done but you need to make sure you are working with professionals. 

The party giving up their interest in the home obtains a lien against the property through a divorce decree, called an Owelty Lien. A very important fact is that an Owelty Lien must be filed at the courthouse in the county records. When the party retaining their interest in the house refinances or sells the home, the other party is paid the value of their Owelty Lien. This solution allows one person to obtain the full interest in the home while removing the "out spouse" from the mortgage and providing them with some of the equity in usable cash.

In Texas, the Owelty Lien is more valuable than in any other state. It is the only way a divorcing couple can access more than 80% of the home's current value without violating the Texas A6 law, or cash-out law. Without the Owelty Lien, borrowers will pay cash out rates that can be higher than a traditionally lower rate and term rates. 

 You must have good credit and be able to afford the mortgage on your income alone in order to qualify for this program. There must be a joint deed on the property between you and your former spouse or partner. You will also need a legal Separation Agreement and a Purchase Agreement prepared by your lawyer.  

Do I pay taxes on a home buyout? 

The Good news is the buyout in a divorce is not a taxable event for either spouse. You can read more about Capital gains taxes and when you should worry about them.  

Learn about the 8 possible tax consequences of a divorce.
 

The Gifford Group can connect you with both Local Lenders or Local Attorneys that can help through this process. 

Let's walk through a hypothetical example, Sara and Sam are going through a divorce. Their home is valued at $450,000, and the couple currently owes $250,000. Let’s assume they are splitting the total equity of the $200,000 using a 50%/50% split (or $100,000 each). Their divorce decree must specify the owelty and the owelty lien must be recorded with the courthouse. Sam would then be able to refinance the property at $400,000: pay off the $250,000 owed on the current mortgage and buy out Sara’s $100,000 owelty lien. Sara receives her $100,000 and now Sam is the sole owner of the home, with a new mortgage of $400,000.  Sara has been removed from the old mortgage and the deed.    This doesn't take into account fees with the refinance, or maybe other debts that need to be paid off because of the divorce. 

If Sam wants to still give her the full $100k,  ie, have a Total New Mortgage required to fully buy out Spouse's equity he can achieve this with a mortgage of  $359,000. Payoff the $250,000 + the $100,000 equity + 9,000 Ref fees. Sam is paying for all the fees associated with the refinancing.  

In this example, if they use a standard "cash-out refinance" the biggest loan they could get would only be $360,000. The reason for this is because (Current Value X 80% = loan amount) $450,000 X 80% = $360,000.  If fees are taken into account as the last example the total available equity to split is $101,000 a little more than enough to pay off Sara's half of the equity. 

What is the couple owes $350,000? In the previous case, Cash Out worked at $250,000 but if the couple owes $350,000 and the value of the home is still $450,000. 

In the cash-out refinance, the max loan is $360,000 about after fees ($9,000)  would only leave $1,000 of accessible equity. Not a good option for Sara. 

Using the Owelty Lien, the couple can pull more equity out of the house and use the money to pay off the out-spouse. Of course both of these examples there will be additional fees that need to be accounted for. 

How Does An Owelty Lien Actually Work? 

Let's go into a real-world example using the Owelty lien in the same sample as above but assume that they owe $350,000. Sam still cannot borrow the full value of the house, which is worth $450,000. But using the higher loan amount allowed with the owelty lien, the max amount is 95% buyout, Sam's maximum loan amount is $427,500, the max mortgage is 95% of the home's value of $450,000. Sam will want to make sure he is able to afford that new mortgage on his own income. Let's walk through how this works out

Hypothetical Example of an Owelty Lien. 

Let's walk through a hypothetical example, Sara and Sam are going through a divorce. Their home is valued at $450,000, and the couple currently owes $350,000. Let’s assume they are splitting the total equity of the $100,000 using a 50%/50% split (or $50,000 each). Their divorce decree must specify the owelty and the owelty lien must be recorded with the courthouse. 

Sam would then be able to refinance the property at $409,000: pay off the $350,000 owed on the current mortgage and buy out Sara’s $50,000 owelty lien. Sara receives her $50,000 and now Sam is the sole owner of the home, with a new mortgage of $409,000.  

Sara has been removed from the old mortgage and the deed.     

How to Calculate Equity in a Divorce Buyout

In comparison to the previous example a standard cash-out refinance, and the Owelty lien,  this amount is higher. Sam still needs to pay off the old mortgage, as well as buy out Sara's equity, and pay the fee associated with the refinance.  If we pay off the old mortgage with the Max new loan amount of $427,500  (the old mortgage was $350,000), we are left with only $77,500 in equity to split.  Then, after paying say, 2% in fees* for the refinance ($9,000 in this example), $77,500 less $9,000 in fees leaves $68,500, accessible equity.

Sara could only walk away with her $50,000 if she is awarded half of that amount, of accessible equity after fees. 

 A new mortgage is required to buy out the Spouse's accessible equity (the 95%) he can achieve this with a mortgage of $409,000.             

      $350,000    (This would Payoff the old mortgage )          

     + $50,000    (Equity Half, be able to give equity split)          

     +   $9,000    (Refinance fees ) 

     -------------- 

     $ 409,000   Total New Mortgage Required to buyout Spouse 

 *Expect to pay about 3 to 5 percent of the new loan amount for closing costs to do a cash-out refinance. These closing costs can include lender origination fees and an appraisal fee to assess the home’s current value.   Other fees, such as prepaid money and escrows fees, will also need to be considered.  Use Our Mortgage Calculator to find out what will be the Mortgage payment be after the Divorce Buyout?

Shop around with multiple lenders to ensure you’re getting the most competitive rates and terms.  

 Refinance fees are similar to what you'll find on a purchase loan and include:
       

• Application fees
• Appraisal fees
• Flood certification costs
• Origination fees
• Title search fees
• Title insurance premiums

Most cash-out refinance lenders in Texas will require:

• A credit score of at least 620
• A debt-to-income ratio (DTI) of 45% or less

The state does not set these underwriting rules. Instead, private mortgage lenders can decide whether you’d qualify for a new mortgage loan based on your credit profile.

The only way to get access to 100% of the home's current equity is to sell the house. 

If you are in the Houston area and want our help, get connected with us today and we can help determine the true value of your property, and help you uncover any unknowns that could stop you from refinancing your property. Property division can be scary, take a look at the three ways to determine a home's value. 

 The good news is that you will be able to see what your options are after you use the house buyout calculator. You will be able to see whether you can buy out your spouse before or during the divorce process. 

It is important to protect your credit when going to Divorce so you can buy a house after divorce. What happens to the House During Divorce?

 Download Our Free Informational Resource Protect Yourself & Get The Facts!