stablein-tlta paper marriage, divorce and their real estate implications … · 2017. 4. 18. ·...

MARRIAGE, DIVORCE AND THEIR REAL ESTATE IMPLICATIONS

Texas Land Title Institute December 4, 2009

George Stablein Regional Counsel, North American Title Company

16103 West Little York, Suite F Houston, Texas 77084

(281) 550-2840

George Stablein

George has been in the title industry for eleven years. George currently is Vice President and Texas Regional Counsel for North American Title Insurance Company and also serves as Senior Vice President and Texas Regional Counsel for North American Title Company in Houston, Texas.

Prior to joining North American in 2003, George had the honor of being Underwriting Counsel for First American Title Company. George has served on numerous committees for the Texas Land Title Association and is currently chairing the Member Services Committee and Young Professionals Forum Subcommittee (George is the oldest person on this subcommittee by at least 5 years).

George is a featured speaker for numerous real estate organizations throughout the United States (his favorite being TLTA). George is an instructor for TREC. This year will be his fifth time speaking at the Land Title Institute.

George has testified before the Texas Department of Insurance and the Texas Legislature.

George lives in The Woodlands, Texas with his wife Ellen and sons Andy (16) and Jay (5). He also has his dog of 12 years Geordie, cat Dobi (who hates George) and hermit crab Hermie, who George saved from the jaws of Geordie.

Next year George and Ellen will have the privilege of having a senior at The Woodlands High School and a Kindergartener at Barbara Bush Elementary School (insert your comments here ☺).

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Divorce, Marriage and Their Real Estate ImplicationsBy George StableinNorth American Title Insurance Company

2009 TEXAS LAND TITLE INSTITUTE

Goals

Provide materials you can use in your day to day practiceProvide some “tools”/practical approaches to real life situations☺

To keep a promise (last year)


Thank You

Bruce LiesmanRichard BlackRoland LoveAlison Hale (NAT)The underwriting manuals of FATCO and TRG

Celia FlowersAll the underwriting counsels I have worked with the past 7 years with NATCMy Family

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“The Law” v. Title Insurance/Underwriting..Again

May be a broken record but…

Title Insurance is InsuranceYou do not HAVE TO insure anything

Underwriting


Before Marriage

Times are a changing

Common Law Marriage

Highlights (considerations)


Before Marriage

Just “living together”

Common Law “Divorce”

Is this really important?

3


During Marriage

What is being “married”?

Important?


What’s mine is mine and what’s yours is mine

Community Property

Always start with the simple things

It’s my:“Non homestead”, “Business Property”, “Vacation Property”


“I don’t want anything but your love…baby”

Separate Property (The changing dynamics of the “family”)

What is Separate Property?

Why is this important in Title Insurance?

4


Separate Property

Ways to “turn it” Separate Property into Community (or a part of it at least)

AgreementGiftAction (Transmutation) (Underwriting)Why do we care?


Non Purchasing Spouse

Does anyone do this? Yes

Things to think about when this comes up as it relates to closing a transaction

“One to buy, two to sell”


Prenuptial Agreements

Mine

Legal

Title Insurance

5


HOMESTEAD

If a property is homestead…

Both spouses need to be involved (Deed/Deed of Trust)


Divorce

Before we get too into this (why this is an important topic)…

Divorce happens a lotCommon title insurance fact patternwww.freshstartafterdivorce.comI may give some verbal tips re divorce I have learned over time


Divorce

People do not get divorce (generally) because the magnitude of their love is so powerful they can not live together

People are irrational and angryYou are involved with the sale of their home (think about that)Why do I think this important?

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Divorce Decrees

Ways to divide real property

Deed (Quit Claim??)Court OrderFormal Agreement (Decree)


What is a “Good” Divorce Decree?

What do you mean by “good”?

Relying upon to act as a way to divest one of title (like a deed or court order)

Good (I think) Rule of Thumb


Divorce Decree Checklist

1. Do you have a copy of the Decree (“I can’t find it”)

2. Does the Decree address the correct spouses?

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Divorce Decree Checklist Continued

3. Does the Decree address the property at issue?

a. “All the property”, “All the real property”etc.

b. Better: “1313 Mockingbird Lane”c. Even Better: Legal Descriptiond. Don’t forget Underwriting



4. Words that divest one spouse of title and ownership

a. “George is divested of all right title and interest”



5. Is there a “Dangling Interest” (Equitable Interest?)?a. “Upon (insert event) George gets ($$)

1. Certain Event: Sale (home equity?),Kids hit a certain age/education, remarriage

2. “Gets ______”a. A dollar amount or % of proceed

upon the event

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“Dangling Interest” Continued

“Hey I don’t owe him that anymore”: A “Real World” fact pattern

How to split the proceeds1. One check with all the names or;2. Written Agreement between the parties3. Escrow if there is a dispute?


Foreign Divorce Decrees

Another State?A good rule of thumb to remember

Another Country?Depends on country


Divorce Decree: Final Thoughts

Keep in mind a decree is a legal document and a judgment;Though an attorney drafted the decree, it may not be “right” for insurance purposes;

“Slander”“Malpractice”

9


Strange but true…

“I can’t find my husband”“My husband is in jail/prison so I don’t have to deal with his sorry carcass anymore!”“What if he dies in the middle of our divorce?”


Owelty

The idea is one person gets 100% interest in the title while the other retains a lien on 100% (entire) of the property;Buying the interest from the other person who secures a lien on the entire homestead until he/she is paid;


“Separated Spouses”

In Texas…

“Legal Separation” in another state but Texas property involved?

Underwriting Considerations

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“In the middle” of a divorce?

Selling?

Buying


Effects of a divorce on..

Wills

Powers of Attorney


THANK YOU!!!

2009 Texas Land Title Institute Marriage, Divorce and their Real Estate Implications Page i

Table of Contents

I. INTRODUCTION.................................................................................................1 II. MARRIAGE........................................................................................................2 A. COMMON LAW MARRIAGE ........................................................................2 B. FORMAL MARRIAGE ...................................................................................4 III. THE "CHARACTER" OF PROPERTY IN TEXAS.................................................6 A. COMMUNITY PROPERTY.............................................................................6 B. SEPARATE PROPERTY .................................................................................7 C. HAS THE CHARACTER OF THE PROPERTY CHANGED? .............................7 D. NON-PURCHASING SPOUSES.......................................................................9 E. CONVEYANCING..........................................................................................9 F. PREMARITAL AGREEMENTS .......................................................................9 IV. DIVORCE.........................................................................................................12 A. DIVIDING PROPERTY BY COURT ORDER/DEED.......................................12 B. DIVIDING PROPERTY BY DIVORCE DECREE ............................................12 C. LEGAL SEPARATION? ...............................................................................15 D. CONVEYANCES PENDING DIVORCE..........................................................15 E. THE EFFECTS OF DIVORCE ON A WILL/POWER OF ATTORNEY..............16 F. COMMON LAW "DIVORCE" .....................................................................16 ATTACHMENT 1: CHAPTER 2 – THE MARRIAGE RELATIONSHIP ATTACHMENT 2: CHAPTER 3 – MARITAL PROPERTY RIGHTS AND LIABILITIES ATTACHMENT 3: CHAPTER 4 – PREMARITAL AND MARITAL PROPERTY

2009 Texas Land Title Institute Marriage, Divorce and their Real Estate Implications Page 1

MARRIAGE, DIVORCE AND THEIR REAL ESTATE IMPLICATIONS

THE PURPOSE OF THIS PAPER IS TO PROVIDE A RESOURCE FOR THE ATTENDEE, A "GO-TO GUIDE" OF SORTS, SO THAT WHEN A RELATED ISSUE COMES ACROSS THE ATTENDEE'S DESK, HE/SHE WILL BE ABLE TO QUICKLY ACCESS USEFUL INFORMATION ON THE TOPICS COVERED IN THE PRESENTATION. WHILE THIS PAPER IS BY NO MEANS INTENDED TO BE AN EXHAUSTIVE RESOURCE WITH RESPECT TO MARRIAGES AND DIVORCES AND THE ISSUES THAT EACH RAISE WITH RESPECT TO THE ISSUANCE OF TITLE INSURANCE IN THE STATE OF TEXAS, THE AUTHOR'S GOAL IS TO POINT THE READER IN THE RIGHT DIRECTION; TO PROVIDE SOME INSIGHT AS TO THE QUESTIONS THAT SHOULD BE ASKED; AND TO IDENTIFY THE ISSUES THAT WILL LIKELY NEED TO BE ADDRESSED.

I. INTRODUCTION. Human relationships are an inevitable part of life as we know it. In today's society, it is a rare occurrence for a person to live his or her entire life without forming some sort of meaningful relationship or bond (legally recognized or otherwise) with another person. Likewise, it is also rare for a person to go through their entire life without being involved in some sort of real estate transaction with another person (be it a spouse, a soul mate, a roommate, a partner, or otherwise).

The constant existence of these likelihoods is the author's reason for presenting this paper. It is clear that human relationships (i.e. marriage and divorce) will always be an unavoidable part of the real estate process, and as such, title professionals need to be aware of the issues that can arise out of those relationships, creating challenges and roadblocks to a smooth and successful closing.

A Question for your Underwriter. As you are well aware, all Underwriters are not created equally, and they do not all look at every fact pattern the same. With this in mind, it is important to either ask your Underwriter how they will insure a particular transaction or to obtain materials which clearly set forth your Underwriter's position on certain issues before you proceed. The purpose of this paper is to point out and highlight the issues for you so that you will be aware of the appropriate questions to ask before proceeding.


II. MARRIAGE. It is commonly known that there are two common types of marriage which are recognized as valid in Texas; (A) common law or informal marriage, or (B) the ceremonial, formal, or civil marriage.

A. COMMON LAW MARRIAGE.

1. In General. Today, there are more people than ever before who are living together and who are buying and selling property together without being what is traditionally accepted as a "married" couple. That being the case, it is not uncommon for a title professional to be asked to close a purchase and sale transaction and to issue title insurance for the transaction in which the buyers or the sellers (or both) are not married, but yet have rights and possible duties related to the real estate transaction. Below is some general information relating to common law marriages in the Sate of Texas.

• Common law marriages, or informal marriages, have been recognized in Texas since 1847. Tarpley v. Poage's Adm'r, 2 Tex. 139, 149 (Tex. 1847). The elements of a common law marriage in Texas are as follows: (1) the parties live together, (2) the parties hold themselves out to the public as being married, and (3) the parties agree between themselves that they are married. Grigsby v. Reib, 153 S.W. 1124 (Tex. 1913); Russell v. Russell, 865 S.W.2d 929 (Tex. 1993).

• Proof of Informal Marriage (Tex. Fam. Code Section 2.401).

(a) In a judicial, administrative, or other proceeding, the marriage of a man and a woman may be proved by evidence that: (1) a declaration of their marriage has been signed as provided by this subchapter; or (2) the man and woman agreed to be married and after the agreement they lived together in this state as husband and wife and there represented to others that they were married.

(b) If a proceeding in which a marriage is to be proved as provided by Subsection (a)(2) is not commenced before the second anniversary of the date on which the parties separated and ceased to living together, it is rebuttably presumed that the parties did not enter into an agreement to be married.

(c) A person under 18 years of age may not: (1) be a party to an informal marriage; or (2) execute a declaration of informal marriage under Section 2.402.

(d) A person may not be a party to an informal marriage or execute a declaration of an informal marriage if the person is presently married to a


person who is not the other party to the informal marriage or declaration of any informal marriage, as applicable.

• Pursuant to Section 2.401(a)(1) of the Texas Family Code (see above), the parties may file a formal declaration with the County Clerk establishing that they have met the requirements of a common law marriage, but they are not required to do so. Please see Section 2.402 of the Texas Family Code for more information regarding the form and or requirements for declaring and registering an informal marriage.

2. Establishing Whether a Common Law Marriage Exists. You may be asked to determine whether a particular couple's relationship is such that they could be deemed common law married. Since the answer to this question can often determine which parties need to join in a transaction, below is a list of questions for your use in analyzing the situation.

o Have the parties created a common law marriage by filing a formal

declaration of record with the County Clerk? If so, you will be able to rely on that declaration as evidence that a common law marriage has been established.

o If the parties have not filed a formal declaration with the County Clerk, do

all three of the following elements exist? o The "spouses" cohabitate in the State of Texas; and o The "spouses" agree between themselves that they are married; and o The "spouses" hold themselves out to others as being married.

3. Just Living Together? As you can tell by the factual nature of the three elements listed above, determining whether a common law marriage exists (in situations where no formal declaration has been filed) can be difficult, if not impossible for the title professional to accomplish. In situations such as these you should consider the possibility that the parties are simply living together and have not intended to establish a common law marriage, and since cohabitation (i.e. living together) is only one of the elements necessary for establishing a common law marriage, a common law marriage likely does not exist. For example, if a couple is living together but do not believe that they are common law married, the title professional should not be required to treat the couple as married.

4. A Question for your Underwriter. You will want to ask your Underwriter whether they are willing to accept the couple as not being common law or informally married and whether or not you can proceed with the transaction under this assumption with respect to the appropriate requirements for joinder, ect. As a matter of fact, it is the author's recommendation that you always obtain written direction from your Underwriter as to how you should proceed when you


are being asked to determine these types of issues in connection with the issuance of a title insurance policy.

• If the Answer is No. It is quite possible that your Underwriter will not be willing to entertain this type of analysis due to the fact that it is safer (and thus, less risky) to require the couple to act as if they are married with respect to the transaction. If this is the case, you will need to close the transaction following the same requirements you would use if the couple were married (i.e. keeping separate/community property and homestead issues in mind) regardless of the actual character of the couple's relationship.

• If the Answer is Maybe. On the other hand, your Underwriter may be willing to entertain the question. If so, the Underwriter may have some additional requirements, which may include, but are certainly not limited to, the following:

o The Underwriter may require an affidavit from the couple confirming the following:

1. They have not undergone any type of marriage ceremony; 2. They have not agreed between themselves to be married; and 3. They have never held themselves out in any way as being married to each other.

B. FORMAL MARRIAGE.

1. In General. Married couples buy, sell, refinance and otherwise encumber real property every single day. Because this situation is much more common place, the title professional should face relatively few circumstances where the marital relationship itself is an issue. Below is some general information relating to ceremonial, formal or civil marriage in the State of Texas.

• This type of marriage requires that the parties obtain a marriage license. Texas Family Code Section 2.001(a).

• Each party must be at least 18 years old before a marriage license may be

issued by the County Clerk. Texas Family Code Section 2.101. There are, however, some exceptions to this age limit which will allow someone as young as 14 to obtain a marriage license.

• For your reference, a copy of the table of contents for Chapter 2 of the

Texas Family Code (The Marriage Relationship) has been included at the end of this paper as Attachment 1.

2. Is the Couple Actually Married? There are many different ways in which people get married. Therefore, rather than trying to determine whether or not a


couple is actually married (i.e. trying to determine whether the way in which they got married was valid and whether the formalities were effective), it is probably more prudent to focus on the fact that the couple is holding themselves out to the public as being married and proceed accordingly. You will, of course, want to confirm this strategy with your Underwriter before you proceed.


III. THE "CHARACTER" OF PROPERTY IN TEXAS.

A. COMMUNITY PROPERTY. As you are likely aware, Texas has been a community property jurisdiction since its inception as a state. The basic rules and definitions governing separate and community property were a part of the first constitution, and have been carried over into all subsequent constitutions. Because the Texas community property system has a constitutional base, fundamental changes in the community property rules have always required a constitutional amendment. The constitutional provisions have been amplified by statute. Generally, what you should be aware of is that the law will presume that any property owned by a married person is community property. Texas Family Code Section 3.003. For your reference, a copy of the table of contents for Chapter 3 of the Texas Family Code (Marital Property Rights and Liabilities) has been included at the end of this paper as Attachment 2.

1. In General. As a general rule of thumb, when a person owns a piece of real property while married, you should start your analysis of the situation under the assumptions that (a) the real property is community property, and (b) the real property is the couple's "homestead". From there you can review the facts in more detail to determine whether the real property is community or separate, homestead or non-homestead, etc. To assist you with your analysis, below is some general information relating to community property in the State of Texas.

• Texas follows the "inception of title" rule. Under this rule, the separate or community character of a particular piece of real property is determined at the time the property is acquired, and no subsequent actions will alter its character. Welder v. Lambert, 44 S.W. 281 (Tex. 1898); Texas Family Code Section 3.403(a). For example:

o Any property owned before the marriage is and remains the

separate property of the spouse who holds title; and

o Any property acquired during the marriage is presumed to be community property, unless it is affirmatively shown that the property was (a) acquired by gift, devise or descent, or (b) acquired with the separate property (or separate credit) of one of the spouses. Texas Family Code Section 3.002. If a piece of real property is properly characterized as "community property", the husband and wife hold an equal, undivided interest in that piece of real property.

o Unless additional evidence can be presented, the presumption that

all property acquired during the marriage is community property will survive even if only one spouse is named as the grantee on the deed. K. B. v. N. B., 811 S.W.2d 634, 642 (Tex. App. – San Antonio 1991, no writ).


2. "Red Flags". At times, you are likely to hear some of the following terms offered by the parties as proof that one of the spouses need not join as a party to the transaction (of course, this list is not exclusive): "non-homestead", "business property", "vacation property", and "separate property". And while these terms can certainly have merit, often times they do not, so the title professional will need to independently determine if in fact community property or homestead laws trump the arguments being put forth by the parties.

B. SEPARATE PROPERTY. The following types of real property can fairly easily be characterized as the separate property of one of the spouses, thereby possibly eliminating the need to have the other spouse join in the transaction: (a) Property owned or claimed by the spouse before the marriage; (b) Property acquired by the spouse during the marriage by gift, devise or descent; and (c) Property bought by the spouse during the marriage with the sole and separate funds of the spouse. In addition, it is possible for one spouse to convey his or her undivided interest in community property to the other spouse, which will in turn vest complete title in the property (previously community property) to the grantee spouse as separate property; provided that the conveyance was a gift or the consideration was paid out of the grantee's separate estate. In the Matter of Morrison, 913 S.W.2d 689, 692 (Tex. App. – Texarkana 1995, pet. denied).

1. A Question for your Underwriter. In situations where the parties are claiming that the property is one of the spouse's separate property (and not community property), you will want to ask your Underwriter whether you will be able to issue a title insurance policy without obtaining the joinder of (and signatures from) the other spouse.

• When presenting this question to your Underwriter, the author would recommend that you be able to provide the following documentation:

o Proof of the "separate" nature of the real property (i.e. what kind of

proof do the parties have that the property is indeed the separate property of one of the spouses). This proof can be presented in the form of a deed, proof of death or inheritance, proof of purchase with separate funds, etc.

o An affidavit, signed by both spouses, which specifically

disclaiming any homestead interest in the real property. It may also be prudent to have the parties specifically describe in this affidavit the piece of property that is their homestead.

C. HAS THE CHARACTER OF THE PROPERTY CHANGED? Although the character of the property is determined at the time of acquisition, there are several situations in which the character of the property can change following acquisition. If such a change has occurred, the other spouse may need to join in the transaction.


1. From Separate to Community. The title professional should always consider whether any events have occurred, or whether the parties have taken any actions, which would change the character of the property from "separate" to "community". And at the very least, an inquiry should be made as to whether anything has been done to create a community interest in the separate property. Below is a list (non-exclusive, of course) of some actions/events which could cause a change in the character of a piece of real property from "separate" to "community" or which could cause a community interest to be created in separate property:

• Pursuant to Section 4.202 of the Texas Family Code, spouses can convert separate property into community property by written agreement. The agreement must (a) be made during the marriage (i.e. it is not possible to effect a conversion in premarital agreement), (b) be in writing and signed by both spouses, and (c) specify the property being converted (i.e. the spouses can not agree that all gifts and inheritances acquired in the future shall be community property). No consideration is required for such a conversion agreement, but the mere transfer of one spouse's property to the names of both spouses is not sufficient to effect a conversion. For your reference, a copy of the table of contents of Chapter 4 of the Texas Family Code (Premarital and Marital Property Agreements) has been included at the end of this paper as Attachment 3.

• It is possible for one spouse to gift an interest in his or her separate

property to the other spouse, causing the real property to be the separate property of the spouse receiving the gift.

• The expenditure of community funds to reduce or discharge secured debt

on one spouse's separate property, or to make capital improvements on the separate property, gives the community estate a claim for economic contribution (i.e. creates a community interest in the separate property). See Texas Family Code Chapter 3.403 for more information on economic contribution.

2. From Community to Separate. Pursuant to Section 4.102 of the Texas Family Code, existing community property, and community property to be acquired in the future, can be partitioned into equal or unequal shares of separate property. An agreement to such effect ( a partition agreement) must be entered into voluntarily and must be in writing and signed by both spouses. In addition spouses may exchange between themselves the interest of one spouse in any community property for the interest of the other spouse in other community property. Texas Property Code Section 4.102. For example, if Harold and Wanda own a farm in Travis County and a ranch in Bastrop County as community property, Harold can exchange (via written agreement signed by both spouses) his ½ community interest in the Travis County farm for Wanda's ½ community interest in the Bastrop County ranch. The result is that the Bastrop County ranch


is Harold's separate property and the Travis County farm is Wanda's separate property.

D. NON-PURCHASING SPOUSES. When you are being asked to close a transaction in which one of the spouses wishes to be designated as "non-purchasing," it is important to know your Underwriter's position on the issue. That being said, below is a list of questions the Underwriter is likely to ask with regard to the issue (the answer will probably need to be "yes" to each of them if they are applicable):

• Is the proposed grantor on the deed of trust the sole grantee on the deed?

• Is the loan secured by the deed of trust limited to the funds advanced to

purchase the property (with acceptable closing costs, as designated by the Underwriter)?

• Does the deed contain a vendor's lien for the entire loan?

E. CONVEYANCING.

1. Separate Property. With respect to separate property, it is not necessary for the non-titled spouse to join in the transaction unless the property is homestead. Pursuant to Section 3.101 of the Texas Family Code, each spouse has the sole management, control and disposition of that spouse's separate property. 2. Community Property. Both spouses must join in a conveyance of community property in order for the conveyance to pass all the interests of both spouses, regardless of whether the property is homestead or not. Cooper v. Texas Gulf Industries, Inc., 513 S.W.2d 200, 202 (Tex. 1974). In fact, a deed of community property to a third party which is executed by only one spouse is not even sufficient to transfer the interest of the signing spouse. Dalton v. Don J. Jackson, Inc., 691 S.W.2d 765 (Tex. App. – Austin 1985, no writ). 3. Homestead Property. Regardless of whether the homestead is the separate property of either spouse or whether it is community property, neither spouse may sell, convey, or otherwise encumber the homestead without the joinder of the other spouse unless a specific exception applies. See Texas Family Code Section 5.001.

F. PREMARITAL AGREEMENTS. A premarital agreement is an agreement between prospective spouses made in contemplation of marriage and to become effective upon marriage. Texas Family Code Section 4.001(a). Pursuant to a premarital agreement (which must be in writing and signed by both of the parties), the parties may agree that property acquired by either of them during the marriage will be the separate property of the grantee spouse, and that no property will be characterized as community property. Texas Family Code Sections 4.002 and 4.003(a)(1). Regardless of whether the couple has signed a premarital agreement, both spouses will still need to execute the deed if the


property is the couple's homestead. But see, Williams v. Williams, 569 S.W.2d 867 (Tex. 1978) (questioning whether a premarital agreement trumps the constitutional requirement of joinder on homestead transactions).


HOMESTEAD

ALTHOUGH THIS PAPER/PRESENTATION IS NOT INTENDED TO BE A DISCUSSION OF THE LAWS IN TEXAS

AS THEY RELATE TO HOMESTEADS, IT IS IMPORTANT TO NOTE THAT THE ABOVE DISCUSSIONS REGARDING THE

CHARACTER OF REAL PROPERTY AND THE NECESSITY OF SPOUSAL JOINDER IS TYPICALLY TRUMPED BY THE

REQUIREMENT THAT BOTH SPOUSES MUST EXECUTE A DEED OR A DEED OF TRUST WHICH CONVEYS AN

INTEREST IN OR AFFECTS THE COUPLE'S HOMESTEAD.


IV. DIVORCE. In general, there are three ways to divide a couple's property in connection with a divorce: (1) by deed, (2) by court order, or (3) by formal agreement (the divorce decree).

A. DIVIDING PROPERTY BY COURT ORDER/DEED. In Texas, the trial courts have wide discretion to make such orders as are necessary to accomplish a fair and equitable (i.e. "just and right") division of the estate. There is no requirement in Texas that the property division be 50/50, and the court's division will be set aside on appeal only if there is an abuse of discretion. Texas Family Code Section 7.001.

1. Deed. The spouse who has been divested of title by the court should execute a deed to the spouse who has been awarded title, and the deed should be recorded in the real property records. Please note that an involuntary lien filed against the divested spouse prior to the time a deed or certified copy of the divorce decree is filed, will cloud the title to the property in the hands of the spouse to whom it was awarded. Stafford v. Lunsford, 53 S.W.3d 906 (Tex. App. – Houston [1st Dist.] 2001, pet. denied). 2. Recordation of the Deed. The most common problem encountered when dealing with property which has been divided as the result of a divorce is the failure of the parties to timely record a deed from one spouse to the other in the county where the property is located. Although execution and delivery of the deed is effective as between the spouses, constructive notice is only given to third parties upon recordation of the deed. Therefore, unless a divorce decree (which properly divests one spouse of title and vests title in the other spouse) is recorded in the real property records, involuntary liens such as abstracts of judgment and federal tax liens can attach. Prewitt v. United States, 972 F.2d 1353 (5th Cir. 1986). 3. Owelty. When awarding title to the homestead to one of the spouses, the court may order that the divested spouse is to receive a sum of money for their equity in the property (i.e. the party to whom the homestead is awarded is "buying" the other party's interest in and to the property). In order to secure payment of the debt, the court may impose an owelty lien on the entirety of the homestead title. If the debt is not paid, the obligee spouse may foreclose on the owelty lien. The obligor spouse may refinance the owelty lien with a third party lender, either as a stand alone lien, or in connection with a home equity lien.

B. DIVIDING PROPERTY BY DIVORCE DECREE. The divorce decree is a judgment and a legal document, and it should always be given its proper deference when being reviewed for the purpose of closing a transaction and issuing title insurance. It is also important to keep in mind that the divorce decree must be sufficient for title insurance purposes, and although it was drafted by an attorney and was sufficient to get the divorce finalized, it still may not meet the requirements necessary for the issuance of title insurance.


1. Failure to Dispose of Property. In the event that the divorce decree does not dispose of all of the couple's community property, the former spouses become co-tenants or joint owners of the property. Busby v. Busby, 457 S.W.2d 551, 554 (Tex. 1970). 2. Foreign Divorce Decree. You will want to ask your Underwriter about their position with respect to this issue, but typically a divorce decree that is granted in another state (so long as it is valid in that state) will be recognized as valid in Texas. McElreath v. McElreath, 354 S.W.2d 722 (Tex. 1961). Acceptance of a divorce decree from another country, on the other hand, may depend on the country and the Underwriter. Therefore, anytime a divorce decree is being offered from a jurisdiction outside the United States, you should obtain your Underwriter's written approval before closing the transaction. 3. A "Good" Divorce Decree. You may be wondering, "what makes a good divorce decree?" In the author's opinion, a "good" divorce decree can be relied upon instead of a deed to divest one spouse of all right, title and interest in and to the subject property. To assist you with your analysis of a divorce decree, the following page contains a checklist of items for you to consider in determining whether the divorce decree is "good," or whether it will need to be adjusted before you can issue title insurance on the property.


DIVORCE DECREE CHECKLIST 1. Do you have a copy of the entire divorce decree? You must have a complete copy in

order to properly review it.

2. Does the divorce decree name the correct spouses (i.e. from this marriage and not from a previous one)?

3. Does the divorce decree address the property at issue? You will want to ask your

Underwriter what the requirements are, but some examples are provided below:

• If the divorce decree contains language such as "all real property" or "all community property", the description of the property is probably not sufficient.

• If the divorce decree contains an address for the property, the description of the

property might be sufficient. • If the divorce decree contains a legal description, the description of the property is

probably sufficient. 4. Does the divorce decree contain words which divest one spouse of title and ownership in

the subject property (i.e. "John is divested of all right, title and interest in and to the real property described below")?

5. Does one of the spouses retain a "dangling interest" (i.e. an equitable interest) in the

property. Some examples of language that would create a dangling interest are provided below:

• "Upon (insert event here), George gets (insert type of compensation here)"

o Examples of events: (a) the sale of the home, (b) the children reaching a

certain age or level of education, or (c) Betty's remarriage o Examples of types of compensation: (a) a set dollar amount, or (b) a

percentage of the proceeds of sale.


C. LEGAL SEPARATION? There is no such thing as a "legal separation" in the State of Texas (i.e. you are either married to your spouse or you are divorced from your spouse). Keeping that in mind, it is the author's recommendation that, as a general rule, you treat persons who are holding themselves out to be "separated" as if they were married.

1. A Question for your Underwriter. If a situation arises where the parties are legally separated under the laws of another state, and wish to be recognized as separated and insured accordingly (i.e. as if they were not married) in the State of Texas, you will want to ask your Underwriter whether they are willing to accept the parties as separated for the purpose of issuing title insurance.

• The Answer is No. Because Texas does not recognize legal separation, the conservative and safe approach to this issue would be to require both parties to sign as if they are married.

• The Answer is Yes. On the other hand, your Underwriter may agree to

recognize the parties as separated if (a) they are in fact legally separated in another state, and (b) the spouse has never resided in Texas.

D. CONVEYANCES PENDING DIVORCE.

1. Selling Property During a Divorce. The prevailing opinion when it comes to parties selling property in the middle of a divorce, is to treat the parties as if they are still married and proceed accordingly. Both spouses should execute the deed and the proceeds check should be made to both spouses (unless instructed otherwise in writing by both spouses). However, please note the following:

• A temporary order may exist ordering property to be sold and/or proceeds to be divided in a certain manner during the pendency of a divorce.

• The parties can sign an agreement directing the sale of property and/or the

division of the proceeds. The agreement must be in writing and be signed by both of the parties.

• If a receiver is appointed by the court, only the receiver is entitled to sell

the property and execute the deed.

2. Purchasing Property During a Divorce. You will want to ask your Underwriter what their policy is on this issue, but it may not be a problem if (a) buying real estate is not prohibited in a temporary divorce order, and (b) your Underwriter's requirements for insuring a purchase money deed of trust executed by one spouse can be complied with. That being said, it is likely that your Underwriter would prefer to not issue the title insurance policy until after the divorce is final or until additional information is obtained from the other spouse's attorney in order to ensure that no issues are going to be raised with respect to the purchase by the spouse who is not purchasing the property.


E. THE EFFECTS OF DIVORCE ON A WILL/POWER OF ATTORNEY. Unless it is expressly stated that a provision survives a divorce, provisions addressing rights, duties and interests of an ex-spouse should be deemed stricken. For example, if the parties are divorced after a spouse has made a will, any devises or bequests to the other spouse are voided by the divorce, and the will is read as if the former spouse pre-deceased the testator. Texas Probate Code Section 69. In addition, an appointment of a spouse as an attorney in fact is voided by a subsequent divorce. Texas Probate Code Section 485A. F. COMMON LAW "DIVORCE". Simply put, once a common law (informal) marriage has been created, the couple at issue are "married" for all intents and purposes, and their relationship can only be dissolved by divorce or by the death of one of the spouses.

1. What if They Just "Break Up"? You could certainly run across a fact pattern where two people who have a common law marriage live together on a piece of real property and they, for lack of a better term, "break up," and one of the parties moves out. If you are aware of this fact pattern when closing and insuring a transaction, you should consider asking your Underwriter the following question. 2. A Question for Your Underwriter. You should ask your Underwriter what their policy is on this issue, and what they need for you to do about the person who has moved out and does not live on the property for which you are trying to close.

• It is possible that your Underwriter will take the conservative approach and require that the person who has moved out be accounted for in your transaction (pursuant to a deed, etc.).

• On the other hand, your Underwriter may allow you to proceed without

the person who has moved out if you are able to obtain additional information. Such information will likely include (but will probably not be limited to) the following:

o How long have the parties ceased to live together? If it has been a

significant period of time (two years for example) because they separated or broke up, or one of the parties died, this could create the presumption that the parties did not intend to have a common law marriage.

2009 Texas Land Title Institute Marriage, Divorce and their Real Estate Implications Page17

THANK YOU!!!!

It is my belief that "thank you" is one of the most powerful and most important phrases in the English Language. Another phrase which is equally important, and severely underutilized (in my opinion), is “I don’t know”. In my experience, it is impossible to know everything, and it is extremely dangerous to assume that you do. With that in mind, I asked some people whom I respect to give me their thoughts on this subject. Their comments and insight were invaluable in making this what I expect to be a successful presentation. I would like to specifically thank the following people: Mark Greek, First American Title Insurance Company; Charlie Odom, First American Title Insurance Company; Bruce Liesman, CAEA, CTIA, Independence Title Company; Richard Black (great materials as well as insight), Stewart Title; Roland Love, Winstead PC; Alison Hale, North American Title Company; Celia Flowers, East Texas Title Companies; The Underwriting Manuals of First American Title Insurance Company and Title Resources Guaranty Company; All the Underwriting Counsels I have had the pleasure of working with the past almost seven years while at North American; and My Family (for being a great source of practical material).

stablein-tlta paper marriage, divorce and their real estate implications … · 2017. 4. 18. ·...

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