When Divorcing, Do You Sell the House?
I was recently on a panel for a divorce webinar with a real estate broker and a mortgage broker, and I was surprised to learn how many couples are talking to their real estate professionals about selling their home and splitting the proceeds prior to filing for divorce. The idea is that this will make it “cleaner”–easier to close with the title company, easier to divide up that asset, easier to know what the true value is of the property.
While you and your spouse can decide to do it this way, don’t assume this is the only option, and make sure you understand all the options before making any decisions. The family home is going to be a big-ticket item in the division of assets. If you decide to sell your house and split the proceeds prior to even engaging a divorce attorney to advise you, you have taken that large asset off the table for the financial negotiation of your divorce.
What You Need to Know About Your House and Divorce
- In Texas, we don’t divide each asset “down the middle”
Texas is a community property state where the division of the marital estate is to be “just and right.” But “just and right” does not necessarily mean 50/50. There can be a disproportionate division of the marital estate dependent of many varied circumstances. And we don’t divide up each asset. Instead, we identify all the assets and all the liabilities of the martial estate and their values, add it all up, and then we look to divide the estate at the bottom line. This means that, most likely, one spouse will be awarded the house (if they want it and can afford to keep it) and roughly equivalent assets will be awarded the other spouse to balance out the division at the bottom line.
- Once the Petition for Divorce is filed, the house cannot be sold absent agreement of the parties or further Order of the Court
Usually Standing Orders or other Temporary Orders are put in place once the Petition for Divorce is filed that prevent the sale of your home while the divorce is pending, absent agreement of both parties or further Order of the Court.
In most circumstances, the Texas court cannot order your house to be sold pending final divorce. Do not feel pressured into making a decision about a large asset of your marriage.
- If you do decide to sell the house, keep the proceeds in a new joint account
Right now it’s a seller’s market in the Austin, TX area. Inventory is low, and offers are coming in over asking price. You and your spouse may want to take advantage of this opportunity. If you know you are getting divorced and both of you know neither wants to even entertain the idea of keeping the house post-divorce, you can agree to sell the house, but don’t make any agreements about how to divide the proceeds. Instead, preserve the proceeds to be available for final division at the end of the divorce. Don’t commingle the proceeds with other assets. Don’t pay off credit card debt. Just put the proceeds in a new joint interest-bearing savings account to add to the asset spreadsheet and to be available for negotiation and division when the divorce is finalized.
Don’t forget, we can always sell the house as part of the final divorce settlement. We do this all the time. We put specific sales provisions in the divorce decree that govern the terms for post-divorce sale.
- It doesn’t matter whose name is on the title or the mortgage to the house
Texas has very stringent and protective laws about your residence when you are married. Even if a house is only held in the name of one spouse, it is presumed to be community property if it was purchased during the marriage. If it was purchased before the marriage, there are other legal protections afforded to you in your homestead by virtue of your marriage. None of that goes away until you are actually divorced, not before when the divorce is pending.
This list is just the tip of the iceberg of issues to consider when deciding whether to sell the house prior to, during or after your divorce. There are many legal and equitable issues involved. If you intend to hire an attorney to represent you in your divorce, you are probably better off waiting to get your attorney’s advice and working with your attorney to negotiate the best deal possible.
Before you agree to sell your house, discuss the situation with an Austin divorce attorney to discover the right path for you.