Times have changed and young couples are now making their commitment to each other with more than an engagement ring…a set of new house keys is now becoming the new norm as well.
For unmarried millennial couples, buying a home together before tying the knot has become more prevalent. According to a Coldwell Banker Marriage and Homebuying Study, a quarter of American millennials purchased their home with their current spouse before getting married. Low-rate mortgages and rising rental costs, among other reasons, make being a homeowner now rather than later seem like an attractive option. And while making that move first can work out well, not every story has a happy ending.
Here’s what unmarried couples who are purchasing, or have purchased, a home together should know:
Community v. Separate Property in Texas
Texas is one of the nine community property jurisdictions in the United States. In community property states, all property acquired after marriage is owned by both spouses and all property acquired before marriage is generally considered separate property. Why does it matter? Because community property can be divided in a divorce and separate property cannot.
The implications of this are important: a home purchased before marriage is separate property in the state of Texas.
You can determine if a house is community property or separate property, using the following rules:
- A house purchased during marriage is presumed to be community property.
- A house owned before marriage is separate property, as is a house inherited or received as a gift. A house can be the separate property of one spouse, or both spouses can have separate property interest in the house.
How to Determine the Ownership Characterization of a Home
Real property can be characterized as either separate or community property, depending on the time and circumstances of the purchase. The most common method for establishing the character of property is the inception of title rule. Under the inception of title rule, a property’s character is based on the time and manner in which a person first acquires an interest in the property.
The first step in establishing the character of property under the inception of title rule is to determine the date of inception of title. The date of inception of title is the date a person first acquires an ownership interest in the property, as well as possession of and title to the property. When purchasing a home, inception of title occurs on the date the earnest money contract is signed. Although the purchaser does not take possession or acquire legal title when the earnest money contract is signed, the inception of title rule is concerned with the date the ownership interest originated, not the date of completion.
As stated, real property purchased before marriage is separate property. If both spouses are named grantees on a deed reflecting a premarital purchase, each spouse will be vested with title to an undivided one-half separate interest in the property. This presumption can be rebutted by showing that the spouses did not furnish the consideration of the purchase in equal shares. Therefore, each spouse’s ownership interest is based on the percentage of consideration each spouse contributed to purchase the home.
For example, if a couple split the earnest money and the down payment 50/50, each spouse would own 50% of the home as his or her separate property. If a couple splits the earnest money and down payment 75/25, then one spouse would own 75% of the home, and the other spouse would own 25% of the home. If one spouse pays for 100% of the earnest money and down payment, that spouse owns the entire home as his/her separate property, regardless if both spouse’s names are on the deed.
Property Owned Jointly
Prior to Marriage Will NOT Automatically Become Community Property Upon Marriage
Couples often mistakenly believe jointly owned premarital property will become community property once they marry. However, separate property will not automatically become community property upon marriage.
Once the property’s character is established under the inception of title rule, that character will not change. For example, changing the property’s form (i.e. being sold or exchanged for other property), appreciation in the property’s value, using community or separate property o improve or complete the purchase of the property, or using separate property to secure community indebtedness will not convert separate property into community property. Moreover, refinancing the loan on a home during marriage will not change the character of a home purchased prior to marriage (i.e. it will remain separate property).
Homebuying shouldn’t be taken lightly, especially when it’s done with someone to whom you’re not legally bound. If you have questions about Texas marital property laws, contact family law attorney, Taylor Joeckel, or any of our other KoonsFuller attorneys located in our Dallas, Denton, Houston, Plano or Southlake offices.
