Divorce Real Estate: Keep It, Sell It, or Refinance?

You bought a house together. Now you’re getting divorced. What happens to it?

This question keeps you up at night, especially in Austin’s hot real estate market. Your home might be worth $200,000 more than when you bought it three years ago. Or maybe you’re underwater on the mortgage. Either way, you need to know your options.

Here’s what you need to decide: Keep it, sell it, or refinance?

Your Three Main Options

Option 1: One Spouse Keeps the House

Most common scenario. One person stays, the other gets bought out.

How the buyout works:

• Get the house appraised (current Austin market rates)
• Calculate equity (home value minus mortgage balance)
• One spouse pays the other half of the equity
• The keeping spouse refinances to remove the other’s name from the mortgage

Example: Your Pflugerville home is worth $450,000. You owe $300,000. Total equity is $150,000. The spouse keeping the house pays the other $75,000.

The catch: You need to qualify for a new mortgage on your income alone. In Travis County, median home prices hit $520,000 in 2024. Can you afford that payment solo?

Option 2: Sell the House and Split Proceeds

Clean break. Both names off everything.

The process:

• List with a realtor familiar with divorce sales
• Pay off the mortgage and selling costs
• Split remaining money 50/50 (usually)

Austin market reality: Homes in Williamson County are selling fast, often over asking price. But remember - selling costs (realtor fees, closing costs) run about 6-8% of sale price.

Tax consideration: If you lived in the house 2 of the last 5 years, you each get $250,000 capital gains exclusion. Married couples filing jointly get $500,000 exclusion, but you might not qualify if you’re separated.

Option 3: Keep It as Joint Investment

Rare, but sometimes makes sense.

Both stay on mortgage and title. Rent it out. Split rental income and expenses. Sell later when market timing is better.

Why this usually doesn’t work: You’re still financially tied together. What if one person wants to sell and the other doesn’t? What if the AC dies and costs $8,000 to replace?

Austin Area Market Specifics

Home values by county (2024 data):

• Travis County median: $520,000
• Williamson County median: $475,000
• Hays County median: $425,000

Appreciation rates: Austin area homes gained 8-12% annually over the last three years. Your $350,000 house from 2021 might be worth $450,000+ today.

Property taxes: Texas has no state income tax, but property taxes are high. Budget 2.5-3% of home value annually. That’s $12,500-15,000 per year on a $500,000 home.

Refinancing and Mortgage Issues

Can’t qualify alone? Common problem. Austin’s high home prices mean big mortgage payments.

Solutions to explore:

• Co-signer (parent, new partner - be careful here)
• Longer loan term to reduce payments
• Different loan type (FHA, VA if eligible)
• Wait to rebuild credit/income

Remove spouse from mortgage: The only way is refinancing. Quit claim deeds don’t remove mortgage responsibility.

Timing matters: Interest rates change. Sometimes it makes sense to wait a few months if rates are dropping.

What About Investment Properties?

Own rental houses? Vacation homes? Different rules apply.

Rental properties: Court looks at net income after expenses. A property generating $500/month profit is worth less than one generating $2,000/month.

Vacation homes: Harder to value. Limited rental market. Often best to sell unless one spouse has strong attachment and can afford upkeep.

Raw land: Tricky to divide. No income. Value is speculative. Consider selling or one spouse buying out the other.

Tax Traps to Avoid

Capital gains: If your house gained value, selling might trigger taxes. Each spouse gets $250,000 exclusion, but timing matters.

Mortgage interest deduction: Only the spouse paying the mortgage can claim it. If you’re paying your ex-spouse’s mortgage through spousal support, you can’t deduct it.

Property tax deduction: Goes to whoever pays the taxes and is on the title.

Consult a CPA: These rules change. Don’t guess on tax implications of divorce real estate decisions.

Special Situations

Bought before marriage? That’s separate property. The non-owner spouse might have a claim if they helped with payments or improvements, but the burden of proof is higher.

Inheritance down payment? If you can trace gift/inheritance money used for down payment, that portion might be separate property.

Living together unmarried? Different rules. No community property protection. Much more complicated.

One spouse hiding assets? Court can award more than 50% to the innocent spouse. Keep records.

The Owelty Lien Solution

Can’t afford to buy out your spouse right now? An owelty lien might help.

How it works: You keep the house. A lien is placed for your spouse’s share. You pay them over time with interest.

Example: Your spouse’s share is $80,000. You set up payments of $800/month for 10 years at 5% interest.

Benefits: You keep the house. Your spouse gets guaranteed payments. No refinancing required immediately.

Risks: You’re still tied financially. Miss payments and your spouse can force a sale.

What the Court Considers

If you can’t agree, a judge decides. They look at:

• Who has primary custody of kids
• Each spouse’s income and earning capacity
• Length of marriage
• Fault in the breakup (adultery, cruelty)
• Tax consequences
• Each spouse’s separate property

Reality check: Judges prefer 50/50 splits. They don’t want to be your financial planner.

Timing Your Move

Before filing: Can you refinance while still married? Might be easier to qualify with both incomes.

During proceedings: Don’t make major changes without telling your lawyer. Moving out might affect temporary custody or support orders.

After decree: Have clear deadlines. “Within 90 days” not “when I can get around to it.”

Working with Real Estate Professionals

Choose divorce-experienced agents: They understand court deadlines, disclosure requirements, and emotional stress.

Get multiple appraisals? Sometimes, but expensive. One neutral appraiser often works if you both trust them.

Inspector for buyouts: The keeping spouse should get inspection. You’ll own all problems after divorce is final.

Red Flags and Mistakes

Assuming you’ll keep the house: Qualify for the mortgage first. Don’t get emotionally attached to something you can’t afford.

Forgetting selling costs: Factor in 6-8% for realtor fees, closing costs, repairs.

Not considering taxes: Especially if you’ve lived in the house a long time and it’s appreciated significantly.

Keeping joint debt: Remove your name from mortgages/HELOCs whenever possible.

Missing deadlines: Courts set strict timelines for property transfers and refinancing.

FAQ About Divorce Real Estate

Q: Do I have to sell the house? A: Not necessarily. You have options: buyout, keep jointly, or sell. Each has pros and cons.

Q: Can I make my spouse leave? A: Not without a court order. Both spouses have equal right to live in the marital home until divorce is final.

Q: What if we’re both on the mortgage but only one on the title? A: You’re both liable for the debt even if only one owns the house. This creates problems that need legal attention.

Q: Can I buy a house during divorce? A: Yes, but be careful. Use only your separate funds and avoid taking on debt that could be considered community property.

Q: What about the mortgage tax deduction? A: Only the spouse who pays the mortgage and is on title can claim it. This affects support calculations.

Q: How long does refinancing take? A: Usually 30-45 days, but can be longer. Plan accordingly, especially if court sets deadlines.

Q: Can my spouse force a sale? A: If it’s community property and you can’t agree, yes. The court can order a sale and division of proceeds.

Q: What if my spouse won’t cooperate with showings? A: Court can order cooperation or exclusive listing rights to one spouse.

Your Next Steps

Going through divorce is stressful enough without wondering what happens to your biggest asset.

Here’s what to do right now:

1. Get current home value - Use online estimates as starting point, but expect formal appraisal later
2. Calculate equity - Home value minus mortgage balance minus selling costs
3. Check mortgage qualification - Can you afford the house on your income alone?
4. Gather financial documents - Mortgage statements, property tax records, insurance policies
5. Consider your timeline - Do you need to move quickly or can you wait for best market conditions?

Every situation is different. Your Austin neighbor’s divorce real estate solution might not work for you.

Ready to protect your home equity and make the right choice? Schedule a consultation to discuss your specific property situation and explore your options.

The sooner you understand your choices, the better decisions you’ll make about your biggest asset.