Selling or Purchasing a Home During Divorce

Selling or Purchasing a Home During Divorce

While not all, many divorces involve real real property and some involve more than one such as a vacation home or rental properties, but most involve just one being the parties marital homestead.  And, most recently with the significant increase in the real estate market in the Austin, Texas area, many parties come to divorce initially asking about being able to sell their homestead because parties often need the cash to pay debts, credit cards, move into their own new residence following separation, or pay Attorneys fees or the costs of the divorce litigation itself.

However, while there are typically many obvious reasons to want to and consider selling real property during a pending divorce, there are equally just as many reasons this may not be a sound strategy.  Doing so can create significant complexities not inherently obvious to a party and create a world of unintended consequences, especially when there are minor children involved.

If you are considering purchasing or selling real estate during a divorce, you should only do so after consulting with your divorce attorney on the best course of action.  And, it is strongly advised to do so only (1) after serious consideration of the entire marital estate and how the sale of such property and allocating those proceeds prior to the divorce becoming final may affect the overall marital estate.

We have seen situations where the parties in the beginning of a divorce matter are working very amicably, collaboratively, and they agree to sell real property by agreement and go ahead and divide those sales proceeds between them.  However, if the divorce is not finalized for an extended period of time – for whatever reason and there are many reasons this can happen – serious complications can arise.

Accordingly, a decision to sell or purchase real estate while a divorce is pending should only be done after careful consultation with your Evans Family Law Divorce Attorney and (2) only pursuant to either a written agreement signed by the parties or an agreed Order that is signed by the parties and entered by the Court.

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Understanding the Difference Between Marital Homestead and Non-Homestead Properties in Divorce

It’s important to understand there is a significant difference between a homestead property and non-homestead property.  In divorce, a divorce Court is prohibited from ordering the sale of homestead property unless by agreement of the parties or upon final judgment.  Meaning, while a divorce is case pending, under what are known as “temporary orders” the Court is without power to order a homestead property to be sold unless both parties agree.

This is because under Texas law, there are only two ways that a divorce court may order the forced sale of a marital homestead:

(1)          pursuant to Article 16, Section 50 of the Texas Constitution; and

(2)          according to Texas Family Code Section 7.001

Exception and Authority for Forced Sale of Homestead in Texas in Divorce

The Texas Constitution provides special protections for the martial homestead, which are unique and distinct from other types of properties.

Article 16, Section 50 of the Texas Constitution and Section 41.001 of the TExas property code both limit the types of liens that are enforceable against a Texas homestead.  While there are eight specific exceptions to the homestead protection from a forced sale, the most relevant one for divorce purposes is known as an “Owelty of Partition” as to where the Texas Constitution sets out this exception to a forced sale of a homestead as follows:

Owelty on partition imposed against the entirety of the property by a court order or by a written agreement of the parties to the partition, including a debt of one spouse in favor of the other spouse resulting from a division or an award of a family homestead in a divorce proceeding;

A divorce court also has authority to order the sale of the parties marital homestead, under the Texas Family Code section 7.001 when ordering the “just and right division” of the parties marital estate.   This section of the Texas Family Code provides as follows:

“IN A DECREE OF DIVORCE OR ANNULMENT, THE COURT SHALL ORDER A DIVISION OF THE ESTATE OF THE PARTIES IN A MANNER THAT THE COURT DEEMS JUST AND RIGHT, HAVING DUE REGARD FOR THE RIGHTS OF EACH PARTY AND ANY CHILDREN OF THE MARRIAGE.  Tex. Fam. Code § 7.001 (O’Connor’s Texas Family Code Plus 2017-18).”

However, section 7.001 only applies at the time of the final division of the parties marital estate, does not apply while the case is pending or is “temporary”.

Accordingly, unless the parties have agreement to sell their marital homestead while their case is pending, the Court is without authority or power to order the issue of the sale of the martial homestead necessarily has to wait until the final disposition of the marital estate.

Options of the Court Upon Divorce Related to The Homestead Property of the Parties

As a result, upon the final division of the parties estate in divorce, unless there is an agreement between the parties when it comes to a marital homestead a divorce court essentially has only the following options:

(1)          Order the house sold and allocate the proceeds between the parties in a manner that the court deems “just and right” (which can be other than “50/50”);

(2)          Order the house be awarded to one spouse entirely;

(3)          Order the house be awarded to one spouse subject to a judgment to the other spouse not awarded the house, with terms requiring payment of that judgment such as monthly payments or a lump sum, and the court may impose what is known as an “Owelty of Partition Lien”.

Owelty Liens in Texas and Homesteads in Divorce

Owelty Liens were added to the Texas Constitution in 1998 and are a specialized lien specific to divorce proceedings.  An Owelty of partition lien is a lien that is created when a “fractional interest” (for example 50%) in a property is awarded to a spouse and the property is being conveyed to the other spouse upon divorce.

An owelty lien is one of the exceptions authorizing a forced sale of a homestead property.  It may only be created by court order, meaning here a Final Decree of Divorce or by a written agreement of the parties in the form of an owelty of partition agreement.  Once the owelty of partition is created, title is then transferred pursuant to an “Owelty Deed”, with special language to recognize the owelty lien and conveys a spouses’ interest in the property awarded to the other spouse all the while retaining the owelty lien and is then recorded with the property records of the applicable county where the property is located.

In its most simple terms, an owelty lien is accompanied by a judgment for a specified amount of money that requires a spouse to pay in accordance with terms that usually are set out in a promissory note, or if that spouse defaults on these payments, the other spouse in whose favor the judgment and lien is granted may — similar to a bank foreclosing on your mortgage — may force the sale of the homestead property to collect on that judgment and satisfy the owelty lien.

This means, for example, that in the event a spouse awarded the property subject to an owelty lien in a Divorce Decree seeks to sell or refinance a property subject to an owelty lien the owelty lien and the judgment is required to be paid at by the title company or the lender at closing in order to “clear title”.

In this most recently inflated real estate market with real property experiencing such significant increases in value, Owelty Liens can be a very creative option for spouses in divorce to create agreements and seek amicable resolutions.

Court Prohibited from Ordering Sale of Homestead and Forcing Payment of Sales Proceeds to pay Unsecured Debts

Also, it’s very common for parties to come to divorce with significant amounts of unsecured debts such as credit cards.  And, it’s very common for one spouse not to “trust” the other on divorce to be financially responsible to pay off their credit card debts upon divorce even with the sale of the house and sufficient sales proceeds to be allocated between them.

As a result, this is often one of the most common motivations for parties to request that the Court order a forced sale of their marital homestead and request that the Court order that the sales proceeds from the sale of the marital homestead be forced to be used to pay these credit card debts.

However, a court in divorce is prohibited under the Texas Constitution from ordering the sale of the parties’ marital homestead and order that the proceeds be forcibly used to pay debts to unsecured creditors, such as credit cards.  See case called Brock v. Brock, 586 S.W.2d 927 , 930 (Tex. Civ. App. — El Paso 1979, no writ).

Accordingly, the court is authorized however, to allocate the credit card debt in divorce between the parties, order that the marital homestead be sold, and the Court may allocate the sales proceeds between the parties in the manner that the court deems to be “just and right”.  This may, in effect, result in a party being allocated much of the credit card debt, but more of the sales proceeds from the sale of the homestead to offset those debts awarded to that party.

Authority for Forced Sale of Non-Homestead Real Property

All of this said, the courts do have authority to order the sale of non-homestead property while a case is pending and pursuant to what are known as “temporary orders”.

Selling Real Estate During Divorce is Prohibited Without Agreement

In a divorce matter, it may be that the situation arises where there are both marital homestead property and non-homestead real property and it is not uncommon at all for one or more of such properties to be titled only in the name of one of the spouses or perhaps it is what is known as the “separate property” of that spouse received through an inheritance from the passing of a parent during the marriage.

And, in divorce, it can be tempting for a party or the pirates to want to sell real property in a situation where there are significant debts or an influx of cash is a critical need.  However, while the court may have such authority, an individual on their own – even if the house is titled only in that party’s name or is the sole and separate property of that spouse – is prohibited in Travis County, Williamson County, Bastrop County, and Hays County from unilaterally selling such property without the agreement of both spouses or pursuant to an Order of the Court.

In Travis County, Williamson County, Bastrop County, and Hays County, Texas where the Austin divorce attorney with the Evans Family Law Group primarily practice, it is important to know that each of these Texas Counties has implemented “Standing Orders” that govern the conduct of parties during the course of a marriage and what a spouse may do with their money, debts, and their property.

For more information, see the articles written on this website regarding the Standing Orders for the applicable county in which your divorce matter may be pending. Travis County Standing Orders,  Williamson County Standing Orders, Bastrop County Standing Orders, Hays County Standing Orders.

For this reason, if a party on their own seeks to sell a non-homestead property and there is no agreement between both spouses in a divorce, the sale could be prohibited by the Court on application of a proper order from the other spouse and that spouse could be found in contempt and sanctioned for such action.  That spouse, instead, must file and seek authorization from the Court to sell that property even if that property is titled solely in that party’s name or is otherwise the sole and separate property of that space to authorize an exception to the Standing Orders that prohibit such a sale during a divorce.

Selling Or Purchasing Real Estate During Divorce By Agreement of the Parties

All of that said, however, in divorce when both parties agree to the sale of real estate — homestead or otherwise — this can easily be accomplished.

Note, these same Standing Orders also apply in situations where a divorce is entirely amicable and one party seeks to purchase a new residence following separation regardless if both parties are in agreement.  This situation is not uncommon, where the parties may want to take advantage of mortgage rates or lock-in residences for school purposes for their children.  However, these same Standing Orders prohibit incurring debt for such a purpose, unless the Court enters an Order authorizing the parties to do so.

At the Evans Family Law Group, we have created various custom agreed orders and agreements that authorize the sale of real property or the purchase of real property by agreement between the parties which are all custom drafted around the particular situation of the parties, circumstances, and the specialized needs of the parties. Everyone’s situation is unique and we can offer sound advice from our extensive experience whether your case is entirely amicable, collaborative, or matters that are contested in every way. Contact our Austin office or Bastrop office today to schedule a free consultation.

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