Q&A #2A: Does Equity Financing Diminish a Ex's Portion of the So-Called Equity

This question was asked  by a consumer...but, it is very similar to questions asked by family law attorneys all the time. It will address property's accessible equity, divorce and equity buyouts in Texas and other states as well. There are multiple parts to this question and answer...so, there will be parts A, B, etc.

Question:

From: RB
Subject: Mortgage divorce calculation question.

Dear Noel,

I read your amazing article and I have what, for you, would be a very simple mortgage divorce question. Hoping you can help.

Divorce decree states we split 50% of all "available equity"...home appraisal calc'd at 412k, loan given at 80% refinanced at $329,600...after fees, HELOC, mortgage balance = "equity" payment was roughly 80k, split as roughly 40k between us. Now ex comes back 2 weeks later and says he believes he is entitled to half of the other 20% that was not refinanced. How would you interpret this?

Thank you.
RB

My Answer:

Hi RB,

Thanks for writing. Some of this depends on what state your property is in. But, the math of it is probably still the same or close to the same no matter what state you’re in.

Here's the bottom line: when you and your husband took out an equity loan on a Texas homestead or primary residence, you effectively made the top 20% off limits for financing in perpetuity (until the equity loan is paid off in full). The reason for this is that no lender can advance funds that will make the total encumbrances (liens) against the property exceed 80% of the home's value at time of financing. So, while your husband may have a logical point, it is an impractical one. So, 'if you think it's a fair offer from him, ask him if he will finance it, because no lender will.

Does this help?

Noel Cookman

As I will painfully illustrate in the next few installments of this important question, there are so many things wrong with this, I hardly know where to begin. The divorce decree/settlement did not specify the buyout. The lender was not a Divorce-Lending Specialist certified by The Mortgage Institute and, therefore, had no idea how to truly resolve and SOLVE this issue. There was no preview of the decree/settlement by the lender; there was not proper construction of the buyout and a strategy to actually remove the equity lending restrictions. This is a highly specialized strategy but eminently doable.

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