Thinking of Buying or Selling Assets During a Divorce in Texas? You May Want to Think Again

When going through an emotionally and mentally draining experience, we’re prone to make hasty decisions when the best move would be to hold tight. Buying or selling large assets during a divorce could be one of those times when you should have held tight. While it may not be against the law, and in some cases may seem a necessity, there are a number of reasons you may want to reconsider buying, selling, or transferring assets during a divorce. We’ll explore a few of those reasons throughout this article.

Selling Assets During a Divorce in Texas 

Selling major assets during a divorce in Texas isn’t recommended and is sometimes not permissible due to certain court orders, such as Standing Orders.

The 411 on Standing Orders 

In a contested divorce, an Standing Orders, are put into action to maintain the status quo enjoyed by the parties and prevent one spouse from financially harming the other by selling assets or transferring ownership of those assets to others with the intention of those assets being transferred back after the divorce is final.

Standing Orders generally prohibit either spouse from selling, transferring, or disposing of any assets, The rule goes into effect for the spouse filing for divorce once they’ve officially filed, and for their partner when they’re served.

There are exceptions to this rule however. Assets can be sold, transferred, or otherwise disposed for the following reasons:

• For reasonable living expenses. Keep in mind, the term “reasonable” is subjective and if your spouse contests your purchases made with these funds as “unreasonable,” the judge may deem your expenditures as such and penalize you accordingly.
• If your spouse agrees in writing. If your spouse agrees to the sale or transfer of an asset in writing, Texas Law permits you to proceed with the sale or transfer as would be the case with any agreed contract.
• In the normal course of business. For example, if you flip houses or cars for a living, you can most likely still purchase, rehab, and sell the home or vehicle as part of your normal business proceedings.
• In the normal course of investing. For example, if you buy, sell, or trade stocks for income, you can likely continue those activities during a divorce.
• For Payment of Attorney’s Fees and Costs Connected to the Divorce. The Standing Orders may allow you to sell an asset to pay for necessary legal fees associated with your case, provided this action is approved by the Judge or lawyers in advance.
• By court order. The Probate and Family Court may permit a sale or transfer of an asset that would otherwise violate Standing Orders if deemed reasonable.
• If you’re handling your separation via informal mediation. If no complaint has been filed through the court, then Standing Orders do not apply. Nevertheless, it’s recommended to refrain from selling assets until the divorce is final in case mediation fails and a contested divorce is required.

Contact Carrington Smyth PLLC for additional information on Standing Orders or exceptions to the rule.

Fraud On the Community 

Selling or liquidating anything that might be considered marital property during or prior to divorce can be deemed fraud on the community. There are several types of fraud on the community, including the following:

• Actual Fraud: When a spouse spends community funds or transfers community property to deprive their spouse of the use and enjoyment of the assets.
• Constructive Fraud: When a spouse gifts, sells, or transfers community property in a manner that is excessive or unfair to the other. Constructive fraud also occurs when a person unfairly disposes of their spouse’s interest in community property or incurs debt for both parties without their spouse’s knowledge.
• Breach of Fiduciary Duty: When a spouse acts in their own self-interest rather than in the best interests of those to whom they owe the duty.

Buying Assets During a Divorce in Texas 

Similar to selling assets, buying assets during a divorce in Texas isn’t recommended and can be prohibited by the court via a Standing Order.

What Are Standing Orders? 

Standing orders prohibit you from spending community funds on anything that isn’t a normal living expense, community debt, or legal fee for your divorce. So, purchasing major assets might not be allowed in your case.

The Importance of Maintaining the Status Quo

When it comes to making significant purchases during a divorce, it’s essential to look at the expense in relation to maintaining your lifestyle. If the purchase is made to retain the lifestyle to which you became accustomed during marriage, it has a better chance of being permitted by a judge. It’s important to remember that Texas is a community property state, though. If you buy large assets while still legally married, the court will likely award half of the new asset to your spouse.

What is Considered Community Property in Texas? 

According to Texas law, community property includes all property and earnings acquired by both spouses during marriage, regardless of who paid for it or whose name is on the paperwork. If it was acquired during the dates in which a couple was married and wasn’t inheritance, a gift, or a personal injury settlement, it’s considered community property in Texas.

Examples of Community Property: 

• Income from employment
• Balance of checking and savings accounts
• Individual contributions to retirement accounts made during marriage
• Real estate and vehicles purchased during marriage
• Unemployment compensation and payment for lost wages
• Interest paid on a separate property trust fund
• Rental income earned on a separate property

What is Considered Separate Property in Texas? 

On the flipside of community property is separate property. Under Texas law, separate property is property owned before marriage, or acquired as a gift, inheritance, or part of a personal injury settlement during marriage.

Examples of Separate Property: 

• A gifted vehicle or property
• Jewelry given to one spouse by the other
• Retirement contributions made before marriage
• A house or car purchased prior to marriage (However, if mortgage or car payments were made with community funds during marriage, the non-owning spouse can ask for reimbursement of a portion of the money spent for either.).
• A property inherited from a family member

Buying A House During A Divorce in Texas 

The question as to whether a person can purchase a home during a divorce comes up so frequently it deserves its own section. Buying a house during a divorce in Texas is allowable, but not advisable. Referring back to the previous section, anything purchased while legally married is considered community property. So, if you buy a home before you’re officially divorced, your spouse would be entitled to half of the down payment as well as half of any increase in value enjoyed by the property up until the date of the divorce.

Buying a home during a divorce would also be fraught with difficulty since a spouse is automatically included on a home loan, needs to consent to credit checks, and must be present at closing. Even in the most amicable cases of uncontested divorce or mediation, unless the home is a gift, most spouses wouldn’t be willing to burden his or her own credit and go through the rigmarole of purchasing a home in which he or she won’t be living unless there is some opportunity for financial gain.

Even if you are in a situation in which your spouse is willing to do this for you, it’s recommended to wait until the divorce is final, if possible.

Contact Carrington Smyth PLLC today with additional questions about buying or selling assets during a divorce in Texas.