Divorce Deals Webinar_Handout

8/19/2019 Divorce Deals Webinar_Handout

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Divorce Deals

David M. Hays

Underwriting Counsel


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IN ORDER TO UNDERSTAND DIVORCE…

WE MUST FIRST UNDERSTANDMARRIAGE.

(Marital Property Rights)

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Marital Property Law 101:Separate Property v. Community Property

– Separate Property consist of propertyowned or claimed by the spouse beforemarriage, and the property acquired byspouse during marriage by gift, devise,or descent. (Texas Family Code 3.001)

– Community Property consists of theproperty other than separate property ,acquired by either spouse during

marriage. (Texas Family Code 3.002) – Property possessed by either spouse

during or on dissolution of marriage ispresumed to be community property.(Texas Family Code 3.003)

(This means the burden of proof is on the party claiming that theproperty is not community property.) 3


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Marital Property Law 101Partition of Community Property:

– At any time , the spouses may partitionor exchange between themselves all orpart of their community property, thenexisting or to be acquired, as thespouses may desire. Property or aproperty interest transferred to a spouseby a partition or exchange agreementbecomes that spouse’ separate property.(Texas Family Code § 4.102)

– A partition or exchange agreement mustbe in writing and signed by both parties.(Texas Family Code § 4.104)

– A simple deed between from one spouseto the other does not convert community

property in to separate property. – For insuring purposes, this documentmust be filed of record and include thelegal description of the subject property.

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Marital Property Law 101The Homestead

Whether the homestead is the separateproperty of either spouse or communityproperty, neither spouse may sell, convey, orencumber the homestead without the joinderof the other spouse. (Texas Family Code § 5.001)

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Closing issues related to

divorce

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divorce

H & W are in the process of getting a divorce.One of the parties wants to purchase a newhome during the divorce proceedings but priorto the final order granting the divorce anddoes not want to include the soon to be ex-spouse on the documents.

Can we insure?

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divorce

Answer: – Yes, we can insure in this scenario, even though the

divorce is not final. We would require that thepurchasing spouse take title as his/her sole andseparate property and that a vendor’s lien be reservedand retained by the lender.

Authority: – Texas common law holds that the vendor’s lien is a

superior interest in the property, taking precedenceover even a claim of homestead rights that could be

asserted by the non-purchasing spouse.• However, we would not insure the purchase if it violated a

court order.

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divorce

H & W are in the process of getting a divorce.One of the parties wants to sell a propertywithout their spouses signature.

– Can we insure?

Answer: – Maybe. If we have good evidence that the property is

the separate property of the selling spouse, we may

insure this transaction. We would require the vacatedspouse to sign a non-homestead affidavit. However, ifthere is any question as to the character of the house(SP/CP) we must wait until the divorce is final and thecourt has made an award of the property.

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divorce

H & W are in the process of getting a divorce.One spouse wants to deed the homestead tothe soon to be ex-spouse so he/she can get ahome equity loan without the spouse’s joinderon the loan docs.

Assuming Community Property.

Can we insure?

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divorce

Answer:

– No. We will not insure this transaction.

Reason:

– You are married until you are divorced, and theTexas Constitution prohibits loans on homesteadproperty without the spouse’s signature.

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BUT WHAT IF…

…you have proof that the “other” spouse hasalready moved out of the house and is notclaiming the house as his/her homestead?

Texas Law provides for one homestead perfamily. Until the divorce is final, the couplerepresents a family and the property ishomestead of the family.

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divorce

Divorce decree is signed on July 1, 2012. OnJuly 15, 2012 ex-spouse who obtained title tothe residence wants to close on a home equityloan to fund the divorce settlement.

Can we insure?

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divorce

Answer: – No. We will not insure this

transaction.

Reason:

– The divorce decree is notfinal for 30 days after thedecree is signed. The

terms of the divorce andawards of property can bechanged.

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divorce

H & W are going to get a divorce, and theywant to deed property from one to the otherprior to divorce in order to get the spouse outof title and refinance.

Can we insure?

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divorce

No.

Again, you are married until you are divorced.Deeds between spouses during marriage donot create separate property unlessaccompanied by a written post-maritalagreement, filed of record.

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divorce

No adjudication of title – $300.00 divorce, and decreedoes not address ownershipof community real property.One spouse is living in theproperty and wants to sell or

refinance without joinder ofex-spouse.

Can we insure?17


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divorce

No. Neither spouse was awarded theproperty. We require joinder of the spouses ora deed from one to the other—something wecouldn’t do when they were married.

– (Could go back to court—but rarely happens)

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Warning! Any Time the decree fails to award the community propertyto either spouse, you must be very careful in accepting adeed from the divested spouse to the awarded spouse.Often times the Granting Spouse is receiving or demandsto receive equity from the sale or refinance.

You cannot disburse funds to an ex-spouse in a refinanceunless the parties create an owelty lien or unless thevested spouse executes a home equity loan.

In the case of a sale, we would want the ex-spouse whoclaims to be owed equity, to provide a signed “pay-off”amount and release of claims, etc.

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What the heck is an

Owelty Lien anyway?

An Owelty Lien is used when one spouseneeds to obtain a loan to buy out the otherspouses equity, usually in connection with adivorce.

The proper way to create an Owelty Lien is forit to be created simultaneously with thedivorce through the language contained in thedivorce decree.

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Real World-Owelty Lien

However, if the divorce attorney fails to create anOwelty Lien in the decree , the lien may becreated by written agreement filed of record afterthe divorce—ONLY IF BOTH SPOUSESREMAIN IN TITLE. Sometimes referred to as anOwelty of Partition.

If no Owelty Lien was created in the divorce andone spouse is awarded the property, then wehave problems. You can no longer create andOwelty Lien because there is nothing to partition.

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Real World

No adjudication of title – You get the quickiedivorce, and decree does not addressownership of separate real property.

– If you’re past the time period for appeal and thedecree is final, we’re going to follow the inceptionof title rule, and treat it as separate property.....

– Inception of Title Doctrine. We determine whetherproperty is separate property or community

property based on what the status was when theproperty was acquired.

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Real World

Property awarded to one spouse in the decreebut there is only a street address - no realproperty description.

Historically, we’ve turned these down andrequired either the court order to be clarified bythe judge or a deed from the ex. Now, IF youhave tried and failed to get a deed from the ex,we will look at the description and thedevelopment and make a judgment call as towhether the address is sufficient to avoid futureconfusion.

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Real World- IRS LIens

Your Client was awarded the communityproperty homestead. A title search revealsFederal Tax Liens against the ex-spousewho is no longer in title, but the lien wasperfected prior to divorce. What Now?

An IRS lien perfected prior to divorce attaches to theundivided interest of the debtor. The spouse who isawarded the property takes the property subject to theIRS Lien.

The lien should be considered during the divorceproceedings.

Must obtain a release as to the property.28

Real World- Other Liens

Divorce does not impair the rights of creditors.Once a lien attaches to property, the divorcecannot and does not remove it.

Abstracts of Judgment:

– Homestead- State AJ’s do not attach but can crate

a cloud on title; – Abandonment-If the ex-spouse abandoned the

homestead prior to the divorce (which we typicallyassume), an AJ against him or her may attach tohis or her ½ interest in the property.

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Real World ISSUES AFTER

DIVORCE

What if the decree awards the real property, but divested spousenever files a deed of record.

We prefer to obtain a deed from the divested spouse. The deedwould typically contain recitals that it is being “…executed pursuantto the divorce decree ordered under Cause Number…”

However, if we cannot locate the divested spouse, or if the divestedspouse is uncooperative, we will allow for a complete, certifiedcopy of the divorce decree to be filed of record in the real propertyrecords.

You should have your client sign a written directive for you torecord the decree so that you have evidence that they arecomfortable with all of the information in the decree being revealedin the property records.

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REAL WORLD-Wills

What effect does divorce have on a will?

– Texas Probate Code § 69

• (b) If, after making a will, the testator’s marriage isdissolved, whether by divorce, annulment, or adeclaration that the marriage is void, all provisions in thewill, including all fiduciary appointments, shall be read asif the former spouse and each relative of the testator

failed to survive the testator, unless the will expresslyprovides otherwise.

Don’t rely on a probated will leaving propertyto xSpouse.

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Real World-POWER OF

ATTORNEY

What effect does divorce have on a Durable Power of Attorney? – Texas Probate Code § 485A

• If, after execution of a durable power of attorney, the principal isdivorced from a person who has been appointed the principal'sattorney in fact or agent or the principal's marriage to a person whohas been appointed the principal's attorney in fact or agent isannulled, the powers of the attorney in fact or agent granted to theprincipal's former spouse shall terminate on the date on which thedivorce or annulment of marriage is granted by a court, unlessotherwise expressly provided by the durable power of attorney.

As you can see the POA continues to be effective untilthe divorce is granted, thus another reason why weneed to ratify a POA prior to closing, even between H& W.

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REAL World-RULe 11

Agreements

Prior to a final decree of divorce your clientbrings you a Rule 11 Agreement signed by theparties and their attorneys, stating that theyagree wife will get the property. Wife wants to sellthe property with out joinder of the husband.

What is a Rule 11 Agreement: – Texas Rules of Civil Procedure-Rule 11

• Unless otherwise provided in these Rules, no agreementbetween attorneys or parties touching any suit pending will beenforced unless it be in writing, signed and filed with thepapers as part of the record, or unless it be made in opencourt and entered of record.

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Real World-Rule 11

Agreements

Despite the agreement of theparties, they are still married untildivorced and we would require

joinder of both spouses.

In addition, while Rule 11 Agreements can be binding, uponthe agreement of the parties theRule 11 Agreement can bechanged; and there are caseswhere a single party challenges aRule 11 Agreement based on

misrepresentation of the otherspouse.

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THAT’S ALL FOLKS!

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