Selling a House During a Texas Divorce

Under Texas Family Code §3.003, property either spouse possesses during the marriage or at the time of divorce is presumed to be community property. Overcoming that presumption — proving an asset is separate property, for example because it was owned before the marriage or received by gift or inheritance — takes clear and convincing evidence, a higher bar than in an ordinary civil dispute.

A house bought during the marriage is typically community property even if only one spouse’s name is on the deed or mortgage. That does not automatically mean an even split: Texas Family Code §7.001 directs the court to divide the marital estate in a manner it considers “just and right,” which can depend on each spouse’s earning capacity, fault in the breakup, and the needs of any children.

Most divorcing couples choose among three options for the house: sell it and split the net proceeds under the terms in the decree; have one spouse buy out the other’s equity, usually by refinancing the mortgage into their name alone; or continue co-owning it for a period — common when children are involved — under a written agreement covering who pays the mortgage, taxes, and insurance in the meantime.

Whichever path you are considering, do not sign a sale contract before confirming who has legal authority to sell. If the decree has not yet been finalized, both spouses are typically still owners, and both signatures are usually required at closing regardless of who is living in the house.

IRS rules generally treat a transfer of the home, or a share of it, between spouses or ex-spouses as part of a divorce as producing no immediate taxable gain or loss for the spouse who transfers it. If a spouse moves out but remains an owner, and the divorce or separation instrument lets the other spouse keep living there, the IRS lets the spouse who moved out count the other spouse’s continued use toward the ownership-and-use test that the gain exclusion depends on.

If the house is sold outright, a single filer can generally exclude up to $250,000 of gain from taxable income, or a married couple filing jointly up to $500,000, if they owned and used it as a main home for at least two of the last five years. Exact eligibility, and any partial exclusion, depends on your filing status at the time of sale and the details of your decree — confirm the numbers with a CPA or tax attorney before relying on them.