Texas Family Code 3.401 – 3.410 deal with reimbursement claims. Reimbursement claims come up in Texas Divorces when a spouse owns property before marriage and still own it when the divorce happens. Yes, you can trace sold property into other purchases, but that’s a tracing issue and beyond the score of this article. The separate property owned before marriage is likely to stay “separate property” and so not divided as party of the Community Estate. However, the separate property may have been enriched by the community estate, and so, a spouse can ask for the separate property to repay the community estate.
The increase in the separate property is not a market value increase. It is only the difference in the secured debt attached to that property. The decrease in the value of the debt (reduction in principal) and increase in value any improvements (increase in market value to the property not out of pocket cost of improvements made).
DECREASE IN SECURED DEBT
How this usually plays out in a divorce is: a house owned prior to marriage, a few years go by, and now a divorce happens. Community funds were used to pay down the mortgage all those years. That’s a valid reimbursement claim, the reduction in the mortgage during marriage. That’s NOT the value of every mortgage payment! Mortgage payments are payments of principal, interest, and usually escrow/insurance all rolled into one. Reimbursement is JUST the different in the old mortgage amount at the time of marriage to what the balance is now, at the time of divorce. Vehicles owned before marriage, but paid down during the marriage, follow the same idea; value of loan at time of marriage vs. value of loan at time of divorce, difference is reimbursement claim.
INCREASE IN VALUE
Increases in the market value of the house are not considered in reimbursement claims unless the increase is based on improvements made (with community funds) during marriage. New pools, remodeled kitchens, large improvements, not paint and curtains. Even then, the reimbursement is based on how much the house’s value changed based on just the improvements. Usually an appraiser or realtor is called to give two values, one with the improvements and one if the improvements had not been done. That’s the number used for reimbursement claims not how much was actually spent in materials and labor on the projects. One person’s home makeover masterpiece is another person’s design fail. Beauty (value) is in the eye of the buyer.
Spouses can ask for offsets to reimbursement claims, but “use and enjoyment” is not an allowable offset if it relates to the primary or secondary residence. You can’t say a reimbursement claim is bogus because the spouse “would’ve been paying rent somewhere else so it should be even!” Family Code 3.402(c) forbids that.
Reimbursement claims are tricky, so it’s important to consult with a local attorney to know how to value the claims as well as how they ultimately affect division of the remaining community estate.