Don’t Sell the House in a Texas Divorce: Use Owelty Liens Instead

When a marriage ends, the most emotional asset is often the home. One spouse wants to stay. The other wants to be paid their share. Selling the property isn’t always ideal—especially if children are involved or if one party can afford to remain in the home. The question becomes: How do you divide the equity fairly without forcing a move?

In Texas, that’s where Owelty liens come in.  If you’re going through a divorce in Texas and want to keep the home while paying off your spouse, this legal and financial tool could be your best option. In this article, we’ll break down how Owelty liens work, why they matter, and how to make sure your divorce mortgage is set up properly from the start.

What Is an Owelty Lien?

An Owelty lien is a legal tool used in Texas to divide home equity fairly during a divorce. It allows one spouse to refinance the home and pay the other spouse their share of the equity—without triggering the penalties of a typical Texas cash-out refinance (more on that below).

In a divorce, the home is often the largest asset. If one party wants to keep it, they typically need to "buy out" the other—and that’s usually not possible without pulling equity out of the home, since most people don’t have immediate access to that much liquid cash. An Owelty lien makes this possible. The spouse who is giving up their ownership interest receives a lien against the home, documented in the divorce decree (a key part of the Owelty lien). When the remaining spouse refinances, that lien is paid off at closing.

The result? One person keeps the home. The other gets their fair share of the equity.

Why Not Just Use a Cash-Out Refinance Instead of An Owelty Lien?

Texas does cash-out refinances differently than any other state in the country. In fact, the rules are so strict they’ve been written into the state constitution—specifically, Section 50(a)(6). That means:

• You can only access up to 80% of your home's appraised value

• You will face higher interest rates (though not necessarily higher fees)

• You can only do one cash-out refinance every year (which is actually better than the old rule of one cash-out refinance ever)

Owelty liens bypass these restrictions. As long as the lien is included in the divorce decree and properly recorded, lenders often treat the transaction as a standard rate-and-term refinance—allowing up to 95% loan-to-value (LTV).

This means:

• Better interest rates – Because Owelty lien refinances are classified as rate-and-term, you avoid the pricing penalties that typically come with Texas cash-out loans.

• Higher loan amounts – You may be able to borrow up to 95% of your home’s appraised value instead of being capped at 80%.

• Faster access to your equity – With fewer restrictions and more favorable loan terms, the process moves quicker and with fewer surprises than a traditional cash-out refinance.

Real-Life Example: Houston Divorce With Owelty Lien

Sarah and Marcus own a home in Houston worth $600,000. They owe $400,000 on the current mortgage. They agree to split the $200,000 in equity evenly.

Marcus is moving out, and Sarah wants to keep the house. The divorce decree gives Marcus an Owelty lien for $100,000.

Sarah refinances into a new loan for $500,000:

• $400,000 pays off the old mortgage

• $100,000 pays Marcus his share of the equity

Now, Marcus is off the deed and mortgage, and Sarah owns the home outright (subject to the new loan). This puts Sarah’s loan-to-value (LTV) at approximately 83%.

Without the Owelty lien, Sarah would have been limited to 80% of $600,000 = $480,000—not enough to cover both the mortgage and the buyout. And she would have paid cash-out rates.

Why Would a Lender Need the Divorce Decree?

The divorce decree is the cornerstone of a properly structured Owelty lien. It’s not just a formality—it’s the document that gives legal weight to the equity split and creates a record of the financial obligation between spouses. Without it, most lenders won’t recognize the payout as court-ordered, and the transaction may default to a cash-out refinance.

Lenders require a copy of the divorce decree to:

• Confirm the Owelty lien is valid

• Document the agreed-upon equity split

• Ensure the payout is court-ordered, not voluntary

Without the decree and the recorded lien, the refinance could be misclassified as a cash-out transaction—triggering higher rates, lower loan limits, and delayed closings.

If you’re working with a mortgage lender who doesn’t ask for these documents or doesn’t understand how Owelty liens work, that’s a red flag.

Can You Use an Owelty Lien If You’re Not Married?

Yes. While Owelty liens are most commonly used in divorce cases, they can also apply in other situations:

• Two siblings inherit a property and one wants to keep it while the other prefers a cash buyout. An Owelty lien can be used to fairly divide the inherited equity without selling the home.

• Business partners split real estate after ending their joint venture. An Owelty lien allows one partner to retain ownership while compensating the other.

• Unmarried co-owners separate and decide one party will keep the property. As long as the agreement is documented through a court order or deed, an Owelty lien can be used to complete the equity buyout.

Instead of a divorce decree, the equity division is spelled out in a contract or other legal agreement between the parties (such as a partition deed or court order), an Owelty lien can help facilitate the buyout.

What Happens If You Don’t Use an Owelty Lien?

Choosing not to use an Owelty lien when you qualify for one is a costly mistake. It undermines your financial flexibility, exposes you to higher interest rates, and risks delaying or even derailing the refinance process altogether. Owelty liens are specifically designed to solve these problems—opting out of one when it’s available often leads to unnecessary stress and expense.

Here’s what might go wrong:

• You may not be able to access enough equity to buy out your spouse

• Your refinance will be classified as a cash-out and face higher rates

• The spouse leaving the house might stay on the mortgage—hurting their ability to buy elsewhere

Owelty liens offer a clean legal and financial solution and are the most efficient form of a divorce lien in Texas. They’re enforceable, transparent, and designed to protect both parties. They’re enforceable, transparent, and designed to protect both parties.

FAQs About Divorce Mortgages, Divorce Liens, and Owelty Liens in Texas

Can I perform a divorce mortgage with an Owelty lien before my divorce decree is final and signed by the judge?

No. The divorce decree must be finalized and signed by the judge for the Owelty lien to be legally valid and enforceable. Without it, the lender cannot treat the transaction as a divorce mortgage or apply Owelty-specific guidelines.

What if my divorce decree doesn’t include an Owelty lien?

You will need to amend it. Lenders generally require the lien to be court-ordered and recorded with the county. Work with a divorce attorney and mortgage lender experienced in Owelty refinances.

Is it true I can refinance up to 95% of the home’s value with an Owelty lien?

Often, yes. Lenders treat Owelty refinances as rate-and-term, not cash-out, allowing higher loan-to-value limits.

Does my ex have to be removed from the deed and mortgage?

Yes. The goal of the Owelty lien is to cleanly separate ownership and financial liability. The refinance should pay off the existing loan and remove your ex from both the deed and the debt.

Can I afford to buy out my spouse?

That depends on your credit, income, and debts. A lender can run the numbers and tell you what you qualify for before finalizing your divorce agreement. Keep in mind that the spouse remaining in the home must be able to qualify for the new, larger mortgage on their own—without the help of the departing spouse’s income.

Final Thoughts: Clean Break, Clean Title

An Owelty lien isn’t just a legal term—it’s a financial lifeline. For many divorcing couples in Texas, it’s the best way to fairly divide equity and avoid the complications of selling or settling for a costly cash-out refinance.

If you’re going through a divorce and one of you wants to stay in the home, talk to a lender and attorney who understand how to structure an Owelty lien properly as part of your divorce mortgage strategy.

You shouldn’t have to move out to move on.