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Mortgages, Survivorship Rights and Divorces

Dear Mr. Premack: My husband owned a home before we got married. After we married and began to live there together, he refinanced the home. During the refinance, I was added to the “Deed of Trust” by the bank, but not the mortgage or the recorded title deed. Does being on the ʺDeed of Trustʺ create community property? If it does not create community property, does my husband have to record a new deed with the county, adding me to the deed as well? We want to set up a Community Property Survivorship Agreement. Does it have to wait until he files a new deed? I understand the CPSA becomes void upon divorce, but after many years of marriage, would divorce also return the home to its initial status as my husband’s separate property, or does divorce only remove the survivorship aspect of the CPSA upon divorce? – BB

Before you married your husband, he owned his home as its sole owner. The fact that you and he got married does not itself change the classification of his home. Texas law refers to it as his “separate property” upon marriage, to distinguish it from other community property the two of you may acquire together.

During the refinancing, you say you were added to the deed of trust but “not the mortgage or the recorded title deed”. The deed of trust is the security instrument that gives the lender (the mortgage company) a lien against the property so they can enforce the promissory note if the borrower defaults. The deed of trust is the mortgage. The mortgage company would not have allowed the refinance unless you agreed to sign the mortgage, because at the moment he married you, his house was burdened with marital homestead rights.

Does the fact you signed the mortgage have any effect on the ownership status of the house? No. Under Texas law, signing the deed of trust did not make you an owner of the house, and did not create community property. The house remains your husband’s separate property. You are, however, now fully liable for the entire balance on the mortgage even though you do not own any part of the house. If you get divorced, you have a claim for reimbursement of one-half of the community funds used to pay the mortgage, but you do not own the house itself despite the fact that you remain fully liable for the entire balance of the mortgage. From your perspective, that is very undesirable.

Fortunately, you say your husband desires to change the ownership status of the house. Before year 2000, his only legal option would have been to sign and record a deed gifting you a one-half interest in the house as your separate property. He can still use that option if he wants. But since year 2000, when the Texas Constitution and Statutes were changed, it has become legal to convert separate property into community property. Now he could sign and record a conversion agreement under the provisions of the Texas Family Code to transform the house into community property.

Only if the house is converted into community property under the second option do you and he have the legal right to enter into a Community Property Survivorship Agreement (which would pass title to the house to the survivor between you when either of you dies, without probate). An experienced Elder Law Attorney could prepare one document that both 1) converts the home to community property, and 2) applies the right of survivorship to the home. You will both need to meet with your Elder Law attorney to make this happen, and should do this as part of your broader, overall estate planning effort.

If the two of you do make the house community property with survivorship rights as part of your broader estate plan, and then you later divorce: 1) the survivorship rights are voided, and 2) the house must be split equally. Divorce does not return the home to its prior status as your husband’s separate property. But note that the divorce has no effect on the mortgage. Unless the house is refinanced again after the divorce, you remain fully liable for the entire balance on the mortgage, even if you own no part of the house, because you signed the deed of trust.

Paul Premack is a Certified Elder Law Attorney and a Five Star Wealth Manager (Texas Monthly Magazine 2009-2013) practicing estate planning and probate law in San Antonio.

Original Publication: San Antonio Express News, October 14, 2013


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