Goodbye Economic Contribution and Offsetting Benefits – Hello Texas Family Code 3.402

A common question I come across in my practice is when marital property and salaries have been used to pay the mortgage on a house the other spouse owned prior to marriage. Prior to September 1^st 2009, the formula found in section 3.408 of the Texas Family Code was the vehicle used to determine how the community estate should be compensated for paying the mortgage (collateralized debt) on a house that is the separate property of the other spouse. Most clients have a difficult time calculating and understanding how to arrive at a dollar figure for how much the community should be reimbursed for paying the mortgage for the separate property house.

3.402(a)(3) and (c) provides clear guidance on how to value such a claim.

3.402(a)(3) states ‘the reduction of the principal amount of a debt secured by a lien on property owned before marriage, to the extent the debt existed at the time of marriage’ or in other words, take the value of the mortgage at the time of marriage and deduct from that figure the current outstanding mortgage balance.

3.402(c) reads ‘…the separate estate of a spouse may not claim an offset for use and enjoyment of a primary or secondary residence owned wholly or partly by the separate estate against contributions made by the community estate to the separate estate’ in other words the separate property owner can not claim, per this statue, that the community would have had to pay a rent or mortgage during the marriage because they would have had to live somewhere and thus that money as such is not reimbursable. Speaking with people that worked and drafted this legislation, I was told the reason they instituted this is to simplify the analysis. Simply put, you value the claim at the reduction of principal and the statute eliminates the claim for use and enjoyment while also removing claims of mortgage interest, homeowners insurance and property tax payments from what is reimbursable. I think this makes sense. To me this statue strikes the correct balance of providing enough clarity on what is a reimbursable claim by stating what is the value of the claim while removing ambiguity regarding what can and what can not be offset.

3.402(b) reads ‘the court shall resolve a claim for reimbursement by using equitable principles…’ plainly giving the trial court enough discretion to make the myriad of competing marital property estates and the usual complicating factor’s, that make both a fact finders and litigators job difficult, to ultimately arrive at a just and right division of the marital estate as circumstances necessitate.

This entry was posted on Tuesday, September 22nd, 2009 at 3:54 pm and is filed under Divorce, Post Marital Agreements. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.