Texas Divorce Owelty Lien Refinance
What It Is, How It Works, and How to Refinance After Divorce in Texas
Dividing property during a divorce in Texas can be complicated — especially when the marital home is involved. For many couples, the house represents the largest asset in the estate. Deciding who keeps the home and how equity is divided is one of the most important financial decisions in the divorce process.
In Texas, an owelty lien is one of the most powerful tools available to accomplish this. A Texas Divorce Owelty Lien Refinance allows one spouse to keep the home and refinance the mortgage while paying the other spouse their share of equity — often without triggering Texas cash-out refinance restrictions.
This guide explains:
• What an owelty lien is in Texas
• How divorce refinance works with an owelty lien
• Why it’s different from a Texas cash-out refinance
• A step-by-step example
• How to qualify for an owelty lien refinance
• Why working with an experienced Texas mortgage lender matters
What Is an Owelty Lien in Texas?
An owelty lien in Texas is a court-ordered lien placed on a property during a divorce to equalize the division of equity between spouses.
Instead of selling the home and splitting the proceeds, the court may award the home to one spouse and grant the other spouse a lien against the property for their share of the equity. That lien remains attached to the property until it is paid off — typically through refinancing or a future sale.
In simple terms:
An owelty lien allows one spouse to buy out the other spouse’s equity without selling the home.
The lien must be:
• Clearly awarded in the divorce decree
• Properly recorded in county deed records
• Structured correctly for mortgage underwriting
Because the lien is court-ordered (not voluntary borrowing), it is treated differently under Texas homestead law compared to a traditional second lien or home equity loan.
This distinction creates major refinancing advantages.
How a Texas Divorce Owelty Lien Refinance Works
Refinancing after divorce in Texas follows a specific process. Here’s how it works:
Step 1: Divorce Decree Establishes the Owelty Lien
The divorce decree must clearly state:
• The home is awarded to one spouse
• The departing spouse receives a specific dollar amount as an owelty lien
• The lien is secured against the property
The lien is then recorded with the county.
This step is critical. Without proper documentation, the refinance may be treated as a Texas cash-out loan.
Step 2: Apply for Divorce Refinance in Texas
The spouse keeping the home applies for a refinance in their name only.
Standard qualification guidelines apply:
• Income verification
• Credit review
• Debt-to-income ratio evaluation
• Asset documentation
• Property appraisal
The goal is to qualify independently, without the former spouse’s income.
Step 3: Appraisal and Underwriting
The property is appraised to determine current market value.
Underwriting confirms:
• The borrower can support the new loan alone
• The owelty lien amount matches the divorce decree
• Title work confirms proper lien recording
Step 4: Closing and Lien Payoff
At closing, loan proceeds are used to:
• Pay off the existing mortgage
• Pay the owelty lien amount to the departing spouse
Once complete:
• The departing spouse is removed from the mortgage
• The departing spouse is removed from the deed
• The remaining spouse owns the home independently
This creates a clean financial separation.
Divorce Owelty Lien Example in Texas
Let’s look at a real-world example of how this works:
Home Value: $500,000
Mortgage Balance: $300,000
Total Equity: $200,000
Equity Split: 50/50
Each spouse is entitled to $100,000.
The divorce decree awards the home to Spouse A and grants Spouse B a $100,000 owelty lien.
Spouse A refinances for $400,000:
$300,000 pays off the current mortgage
$100,000 pays the owelty lien
Final Result:
• Spouse A keeps the home
• Spouse B receives $100,000
• Only one borrower remains on the loan
This avoids selling the home and simplifies ownership.
Owelty Lien Refinance vs. Texas Cash-Out Refinance
Texas has unique constitutional restrictions on home equity loans under Section 50(a)(6).
Traditional Texas cash-out refinances:
• Limit borrowing to 80% of appraised value for a normal cash-out loan
• Often have higher interest rates
• Require additional disclosures
• Include mandatory waiting periods
• May impact future refinancing flexibility
An owelty lien refinance is often treated as a rate-and-term refinance — not a cash-out refinance — because the equity distribution is court-ordered.
Benefits may include:
• Potentially lower interest rates
• No 80% LTV limitation tied to cash-out rules
• Fewer regulatory restrictions
• Greater flexibility in future transactions
This is why proper structuring is critical.
Who Qualifies for a Texas Divorce Owelty Lien Refinance?
Qualification depends on:
• Finalized divorce decree
• Recorded owelty lien
• Sufficient income to qualify independently
• Adequate credit profile
• Property value supporting refinance amount
Common loan programs used:
• Conventional loans
• FHA loans
• VA loans (if eligible)
• Jumbo loans for higher-value homes
Every situation is unique, especially in divorce scenarios. Structuring matters.
Why Experience Matters in Texas Divorce Refinancing
Divorce refinancing is not a standard transaction.
It involves:
• Coordination with divorce attorneys
• Proper review of decree language
• Title company collaboration
• Understanding Texas homestead law
• Avoiding unnecessary cash-out classification
If structured incorrectly, the refinance could:
• Trigger cash-out restrictions
• Increase interest rate
• Limit equity access
• Delay closing
Working with a lender experienced in Texas Divorce Owelty Lien Refinance transactions protects your financial outcome.
Why Texas Premier Mortgage Is a Trusted Divorce Refinance Lender
Texas Premier Mortgage has extensive experience helping homeowners refinance during divorce across Texas.
We work closely with:
• Family law attorneys
• Title companies
• Real estate professionals
• Financial advisors
Our team understands:
• Texas homestead protections
• Owelty lien structuring
• Divorce decree review
• Conventional, FHA, VA, and jumbo guidelines
• Timing considerations during divorce proceedings
We help ensure your refinance is structured properly the first time.
Frequently Asked Questions About Texas Divorce Owelty Lien Refinance
Is an owelty lien considered cash-out in Texas?
Often no. If structured properly through a divorce decree, it is typically treated as a rate-and-term refinance.
Can I refinance before the divorce is finalized?
Usually the divorce decree must be finalized before closing, but we can begin the qualification process earlier.
Do I need equity to use an owelty lien refinance?
Yes. There must be equity in the property to divide.
Can I remove my ex-spouse without refinancing?
In most cases, refinancing is required to remove them from mortgage liability.
Take the Next Step with Texas Premier Mortgage
If you are going through a divorce in Texas and need to:
• Buy out your spouse
• Refinance the marital home
• Remove a spouse from the mortgage
• Understand your owelty lien refinance options
Texas Premier Mortgage is here to help.
Contact us directly or complete the Quick Quote form on this page to explore your Texas Divorce Owelty Lien Refinance options with clarity and confidence.
