Divorce When the San Antonio Marital Home Is Already Under Contract

Divorces often start in the middle of a real estate deal. A couple lists the house, signs a sales contract and then one spouse files. Or a couple signs to buy a new house, or a builder’s agreement, and the marriage ends before closing. In Bexar County the answer turns on two dates, the day the contract was signed and the day the petition was filed, because filing starts a standing order that restricts what either spouse can do with property. The contract still binds you to the buyer or the seller, so the two sets of obligations have to be fitted together. This page explains how, for a house you are selling and for a house you are buying, and how the timing of a sale can change the federal tax bill.

As a San Antonio property division lawyer practice, we get these calls with a closing date attached. The situation is one part of real estate and marital home division, and the first consultation is free.

The Standing Order Takes Effect the Instant the Petition Is Filed

The Civil District Courts of Bexar County use a standing order that applies to every divorce and every suit affecting the parent-child relationship. As we read it, it is effective on the filing of the original petition, and the spouse who files must attach a copy to the petition. It binds both spouses, not only the one who did not file. Nobody has to ask for it or wait for a hearing.

These are the parts that matter when a real estate transaction is under way.

• Sales and loans. Neither spouse may sell, transfer, assign, mortgage or encumber property, real estate or personal property, separate or community, except as the order specifically authorizes.
• Debt. Neither may incur debt other than legal expenses for the case, again except as the order authorizes.
• Money. Neither may withdraw from checking or savings accounts or spend cash in the party’s possession or control, except as the order authorizes.
• What the order allows. Its exceptions cover acts reasonable and necessary to a party’s usual business, reasonable spending on attorney’s fees and expenses for the case, and reasonable and necessary living expenses, including shelter.

The order does not mention contracts that were signed before filing, and it does not carve one out. That is why the date of the contract does not settle the question. A closing that happens after the petition is filed is still a sale or a loan that happens after the order took effect. Our guide to stopping a house sale during a San Antonio divorce explains the order and the homestead rule in more detail. Here we take the case where a contract already exists.

If the Marital Home Was Already Under Contract to Sell

Two things are true at once. The standing order restricts a sale unless the court authorizes it. The contract obligates the sellers to close. The Texas Real Estate Commission’s resale contract form, which is widely used for house sales, gives a buyer remedies if the seller defaults: the buyer may seek specific performance, meaning a court order to close, or terminate and recover the earnest money. A seller who simply stops cooperating is not choosing between two safe options.

The homestead rule adds a third problem. Family Code Section 5.001 requires both spouses to join in conveying or encumbering the homestead, whether it is separate or community property. A spouse who is willing to close cannot do it alone, and a spouse who refuses to sign can put the other in default. If the two of you disagree about the sale, that refusal is the real issue, and it has to be resolved by agreement or by the court.

In practice there are three ways to proceed once a petition is on file.

• A written agreement that the court approves. Both spouses agree to close, put the terms in a Rule 11 agreement or an agreed order, and file it. Texas Rule of Civil Procedure 11 enforces an agreement about a pending suit only if it is in writing, signed and filed with the papers, or made in open court and entered of record. The order’s own exceptions do not say that a spouse’s consent is enough, so we want the court’s approval on paper.
• A request to the court. If your spouse will not agree, ask the court for an order that authorizes the sale and states what each spouse must sign. Whether a judge will grant that at an early hearing depends on the facts: the price, the buyer’s deadline, the loan balance and what your spouse objects to.
• A new closing date. Buyers will often agree in writing to move the closing, which buys time for the first two options. Do that through the agent or the title company, and get it in writing.

Settle the same terms a listing agreement would have settled: who signs, where the proceeds are held, who pays the mortgage and the costs until closing, and what happens to the proceeds after closing. Proceeds from a sale during the case are usually held by the title company until the court divides them or the spouses sign an agreement. Our guide on who pays the mortgage covers the payments before closing. Do not close quietly and hope the order does not come up. The title company will ask who the sellers are and whether they are married, and a violation of the order can lead to enforcement and a claim of fraud on the community.

If You Were Already Under Contract to Buy a New Home

A purchase contract signed before filing, whether for a resale house or for new construction, does not disappear when a petition is filed. Completing it is a new financial step in the middle of a divorce, and it raises three questions.

Does the order allow it? The standing order has no wording about buying property. But a purchase usually needs a mortgage, which is debt, and a down payment, which is cash or an account withdrawal. Each of those is restricted unless the order authorizes it. Reasonable and necessary living expenses for shelter are authorized, but a mortgage on a new house is a much larger commitment than a month of rent, and we would not treat it as covered. Get your spouse’s written agreement approved by the court, or an order, before closing. The Family Code’s restraining order provision restricts debt and spending in the same way (Section 6.501(a)(11)).

Who will own it? Property acquired during the marriage is presumed to be community property (Family Code Sections 3.002 and 3.003), and the marriage continues until the decree. A house bought after filing but before the decree is therefore presumed community unless you can trace its funds to separate property. Our guide to the characterization of assets and debts explains how that tracing works. If the court will divide the new house, the question is whether both spouses want to carry it.

What if you walk away? That depends on the contract. In the Texas Real Estate Commission’s resale form, a buyer who terminates within the option period does not get the option fee back, and a buyer who defaults after that may forfeit the earnest money as liquidated damages. Divorce is not a reason to terminate in the terms we reviewed. A builder’s agreement is a separate contract with its own deposit and default terms, so read yours or bring it to us.

Tell the lender early. A pending divorce can change what income and debts the lender counts, and a loan approved before filing may need to be revisited. We do not control that process, but the closing table is too late for the lender to learn about the divorce.

Why Timing Also Matters for Capital Gains Tax on the Marital Home

The timing of a sale can change how much gain is taxed. Under the federal rule for selling a principal residence (26 U.S.C. Section 121), you can exclude up to $250,000 of gain if you owned and used the home as your main home for at least two of the five years before the sale. The limit is $500,000 for a married couple filing a joint return when either spouse meets the ownership test, both meet the use test, and neither has used the exclusion on another sale within the past two years (Section 121(b); Treasury Regulation 1.121-2).

Three points shape the timing.

• The $500,000 limit depends on filing jointly. Marital status on the last day of the year determines marital status for the whole year, according to IRS guidance. A sale that closes before the decree does not by itself preserve the larger limit. You would have to still be married on December 31 and file a joint return. If the decree is signed before the end of the year, each of you files as unmarried.
• After that, each spouse has an individual limit. Co-owners who file separate returns can each exclude up to $250,000 of the gain attributable to each person’s interest (Treasury Regulation 1.121-2(a)(2)). That is the same amount as in the single-filer rule, applied to each share.
• The use test is personal. Each spouse must meet the residence requirement individually. A spouse who moves out is treated as still using the home as a principal residence during any period the other spouse is granted use of it under a divorce or separation instrument (Section 121(d)(3)(B)). The arrangement needs to be in writing and approved. Our guide on moving out during a divorce covers when that comes up.

The decree itself can also be drafted with taxes in mind. A Texas court may consider the tax consequences of a property division (Family Code Section 7.008). The IRS explains the home sale rules in IRS Publication 523. This is federal tax law, not something a divorce court decides, so sequence the sale and the decree with a CPA, using the actual numbers: the basis, the improvements, the expected price and the selling costs. Our divorce team can coordinate the timing with your tax professional.

What This Means for Your Bexar County Divorce

Whether you are the one selling or the one buying, these steps protect you.

• Tell your lawyer about the contract right away, before the first temporary orders hearing if you can, and bring the contract and its deadlines.
• Get the standing order that came with the petition and read the property section. It applies to you too.
• If you need your spouse to sign something to close, ask in writing and keep the response.
• Do not move money for a down payment or sign loan documents until the court or a filed agreement authorizes it.
• Talk to a CPA before choosing between a sale before the decree and one after it.

A San Antonio divorce lawyer can sort out the order of events with you before the contract’s deadlines become the court’s problem.

More About the Marital Home in a San Antonio Divorce

A home in the middle of a sale raises the same questions as any other marital home. These guides cover the rest.

• Owelty liens: buying out house equity and why the timing of the lien matters.
• Mortgage in one spouse’s name: refinancing, assumption and what the deed does and does not decide.
• Dividing a rental property: income, depreciation and the tax cost of a sale.
• Dividing an expensive marital home: homes held in trusts or LLCs and the forced-sale question.
• What happens to the house: a general overview of the marital home in a Texas divorce.
• What happens to debt: how the mortgage and other debts are divided.
• Texas property division strategy: a broader guide to how property is divided in a Texas divorce.
• The Texas Family Code: how the code is organized and where these rules sit.

How We Approach a Home in the Middle of a Deal

Barton & Associates has tried Texas cases since 2001, and the family law team includes Duane Graeff, our managing attorney with more than 26 years in Texas state and federal courts, and trial attorney Desirée Flye. We represent the spouse who wants to close, the spouse who does not and the couple who agree and need the paperwork done correctly.

We begin with a calendar: the date of the contract, the date of filing, the option period, the closing date and any hearing. Then we decide whether the next step is an agreed order, a request to the court, a conversation with the other side’s lawyer or a call to your CPA.

Get a Real Answer for Your Specific Situation

A deal in progress has deadlines that do not wait for the court’s schedule, so call early. Our San Antonio office is at 115 Camaron Street, San Antonio, Texas 78205. You can get directions to our office before your visit. For the first meeting, bring what you can of the following, and call even if you cannot find everything.

• The sales contract, the addenda and any extension or amendment, with the signed dates
• For a purchase, the builder’s agreement or resale contract and the lender’s approval or commitment letter
• The most recent mortgage statement on the house you own
• The cause number, the petition and the standing order or any restraining order
• Messages and emails with the agent, the title company, the builder or the lender
• The deed and the closing statement from when you bought the house you are selling
• Records of earnest money and option fees paid, and by which account
• Dates of any hearings, closings, option deadlines or loan deadlines

Frequently Asked Questions

I signed a contract to sell our house the week before I filed for divorce. Can I still close?

Not automatically. The Bexar County standing order took effect when the petition was filed, and as we read it the order has no exception for a contract signed earlier. A closing after filing is still a sale, so it needs your spouse’s agreement approved by the court, or an order, and the homestead rule requires both spouses to sign the deed (Family Code Section 5.001). Talk to your lawyer about your closing date right away, because the contract has its own deadlines.

My spouse and I were under contract on a new construction home when one of us filed. Can we still close on it?

It depends on how close you are to closing, whether both spouses want the house and whether the court authorizes the mortgage and the cash. The standing order restricts new debt and spending unless it is specifically authorized. A house bought during the case is also presumed to be community property, so the court may be asked to divide it. There is no single answer, and a builder’s contract may have its own deadlines.

What happens to my earnest money if I have to walk away from a home purchase because of the divorce?

That depends on the contract. In the Texas Real Estate Commission’s resale form, a buyer who terminates within the option period does not get the option fee back, and a buyer who defaults may lose the earnest money as liquidated damages. A builder’s agreement has its own deposit and default terms. Review the forfeiture terms with your lawyer before you decide.

Does it matter whether I sell the house before or after my divorce is final for tax purposes?

It can. The exclusion for gain on a principal residence is $250,000 for one person and $500,000 for a married couple filing jointly (26 U.S.C. Section 121(b)). Your marital status on December 31 determines your status for the whole year, so a sale before the decree preserves the larger limit only if you are still married at year end and file a joint return. Talk to a CPA with your actual numbers.

Can I get in trouble for closing on a home sale without telling my spouse first?

Yes. The standing order restricts selling and transferring property unless it is authorized, and the homestead rule requires your spouse’s joinder on the deed. Whether your spouse is told is not the test; whether the court or the order authorized the sale is. A violation can lead to enforcement and a claim of fraud on the community (Family Code Section 7.009). Confirm with your lawyer before any closing after filing.

Can my spouse refuse to sign the closing documents for a house we already have under contract?

A spouse cannot be forced to sign without a court order, and the homestead rule means the sale cannot close without joinder (Family Code Section 5.001). A refusal can put the other spouse in default to the buyer. The options are an agreement, a request to the court for an order authorizing the sale, or a written extension from the buyer while you resolve it.

Where do the sale proceeds go if the divorce is still pending?

Often to the title company, which holds them until the court divides them or the spouses sign an agreement about them. The mortgage is paid off from the proceeds at closing. Put the plan for the proceeds in the agreement or order that authorizes the sale, so no one has to guess later.

Does the standing order stop me from buying a new home during the divorce?

It does not mention purchases, but it restricts new debt, account withdrawals and spending cash unless the order specifically authorizes them (Sections 4.6 through 4.8). A purchase usually needs all three. Get written agreement approved by the court, or an order, before you sign loan documents or move a down payment.

Will a home bought during the divorce be community property?

Probably. Property acquired during the marriage is presumed to be community property, and the marriage lasts until the decree (Family Code Sections 3.002 and 3.003). If you can trace the funds to separate property, you may be able to rebut the presumption for part of it, which takes records and clear and convincing evidence (Section 3.003(b)).

Can the buyer cancel the contract because we are getting divorced?

Divorce is not a termination reason in the terms of the Texas Real Estate Commission resale form we reviewed. A buyer’s right to terminate comes from the option period, financing and title provisions and other terms of the contract. If the buyer learns of a delay and wants out, the contract language decides, so do not assume the deal is safe or that it is over.

If I moved out before the sale, can I still claim the home sale tax exclusion?

Possibly. A spouse who owns the home is treated as using it as a principal residence during any period in which the other spouse or former spouse is granted use of it under a divorce or separation instrument (26 U.S.C. Section 121(d)(3)(B)). You must still meet the ownership and use tests. Get the arrangement in a signed, approved order or agreement and ask a CPA.

Talk to a San Antonio Attorney About a Home Under Contract

A signed contract and a filed petition each carry deadlines, and the order in which you deal with them can decide whether a sale closes, a purchase is protected and the proceeds are safe. Speak with a property division lawyer in San Antonio at Barton & Associates about your contract, your documents and your goals before the next deadline arrives.

Call our San Antonio office at 210-500-0000 or complete the online Free Consultation form to schedule a confidential meeting with a family law attorney in San Antonio. The office is at 115 Camaron Street, San Antonio, Texas 78205.

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Barton & Associates, Attorneys at Law
115 Camaron St, San Antonio, TX 78205
Office: 210-500-0000

Division: Family Law San Antonio
Practice Area: Property & Debt Division
Focus Area: Real Estate & Marital Home Division