Keeping Your Home and Dividing the Equity in Divorce
If you are facing a divorce, one of the primary financial components is dividing your marital assets, which are called community property in Texas. These assets consist of the property that you acquired together as a married couple. For many divorcing couples, the largest – and sometimes the only asset is their home, which can naturally play a larger role than merely being something of value that two people own together.
Purchasing Your Home
When you purchase a home, you acquire a mortgage that amounts to monthly payments. Part of these payments goes toward paying down the principal (the cost of your home) and part of these payments goes toward paying the interest you owe on the loan that purchased the home. Over the years, a more significant percentage of your payments is used to pay down the principal while the amount used to pay down the interest decreases (as the percentage of your home that you own grows, the amount you are required to pay interest on decreases). The part of your home that you have already paid off is known as your equity. Further, your home's value may increase (due to the real estate market or to improvements you have made) over the course of your marriage, which also increases your equity.
Divorce and Your Home
Now, you are facing a divorce, and you likely have plenty of questions about your home. If you share children, one of you may plan to stay in the family home with the children post-divorce, which can raise complicated questions about how you will split the value of your home. The spouse who stays in the home typically takes over the mortgage payments (which may be a tall order). The equity you have accrued in your home will need to be divided in a manner that is deemed equitable (fair under the circumstances, which can vary considerably).
Making the Split
Many couples assume they will need to sell their house to split the equity, but this is not necessarily the case. Your options may include:
Co-ownership – You continue to own the home together until your children reach adulthood and move out (at which point you sell the house and split the proceeds).
Payments over time – The spouse who remains in the home pays off the other’s portion of the equity by making payments over time.
Owelty Loan – One of you works with a mortgage broker to procure an owelty loan that allows you to pay off the other in one lump sum.
It can be complicated, but there may be a way for one of you to stay in your home after your divorce.