General information, not legal or tax advice

Selling a House During a Divorce in Tennessee

When a marriage ends, the house is often the biggest decision on the table. Some couples sell and split what is left. Some agree that one spouse keeps the home and buys out the other. Some leave it to the court. Whichever way you go, Tennessee law, federal tax rules and your mortgage all shape what you can do and when.

This guide covers the questions Manchester and Coffee County owners ask me about the home during a divorce. It is general information from the Tennessee Code, the IRS, the Consumer Financial Protection Bureau (CFPB) and Fannie Mae. It is not legal or tax advice. Your divorce attorney decides the legal strategy, and a tax professional can tell you how a sale affects your return. My job is the real estate side.

Once a divorce is filed, the house is frozen

Tennessee puts automatic orders in place as soon as a divorce starts. Under TCA 36 4 106(d), once a petition for divorce or legal separation is filed and the other spouse is served, or accepts service, temporary injunctions apply to both spouses. One of them restrains both of you from transferring, assigning, borrowing against, concealing or in any way disposing of any marital property without the consent of the other spouse or an order of the court.

In plain terms, while the case is open, neither spouse should list, sell or borrow against a marital home alone. A sale can still happen, but it needs both spouses' consent or a court order. The same statute also bars either spouse from canceling or letting lapse an insurance policy, including homeowners insurance, that covers either spouse or the children, without consent or a court order. Those injunctions last until the final decree, a dismissal, an agreement of the parties or a change ordered by the court.

If you are thinking about listing before or during a divorce, talk with your attorney first about how consent should be documented.

Who gets the house: what Tennessee law says

Tennessee divides marital property equitably, which is not always the same as equally. Under TCA 36 4 121, the court divides marital property without regard to marital fault, in the proportions it finds just, after weighing a list of factors. A few parts of that statute matter most for a home:

• Marital or separate. Marital property generally means property either spouse acquired during the marriage. A home one spouse owned before the marriage, or received by gift or inheritance, is generally separate property, but any increase in its value during the marriage can be marital if each spouse substantially contributed to its preservation and appreciation.
• Value near the end. Marital property is valued as near as reasonably possible to the final divorce hearing, not the date you bought.
• Sale costs and taxes count. Among the factors, the court considers the tax consequences to each spouse and the costs of a reasonably foreseeable sale of the asset.
• The family home. The court may award the family home, or the right to live in it for a reasonable period, to either spouse, with special consideration to a spouse who has physical custody of the children.
• Liens. The court may place a lien on marital real property assigned to one spouse to secure support or a property division payment.
• The mortgage is marital debt too. The court also allocates marital debt, looking at the purpose of the debt, who incurred it, who benefited and who is best able to repay it, and it may order marital debt paid from marital property before the rest is divided.

Your three main options

1. Sell the house and divide the proceeds. At closing, the mortgage and any other liens are paid first, along with closing costs, and the rest is divided the way your agreement or decree says. This also ends both spouses' liability on the loan once it is paid off.

2. One spouse keeps the house. The spouse who stays usually needs to remove the other from the mortgage, often by refinancing or assuming the loan, and may need to pay the other spouse for their share of the equity. More on that below.

3. The court decides. If you cannot agree, TCA 36 4 121 lets the court divest and reinvest title and, where it deems necessary, order the property sold and the proceeds divided. The statute says any auction sale ordered this way follows Tennessee's sale procedures in title 35, chapter 5, and the court may set conditions meant to make sure the property sells for its fair market value.

Many couples settle the house in a written agreement instead. For a divorce on the ground of irreconcilable differences, TCA 36 4 103 says the court must find that the spouses made adequate written provision for the equitable settlement of their property rights, and the agreement becomes part of the decree. That statute also says the case must be on file at least 60 days before it is heard if there is no unmarried child under 18, or at least 90 days if there is.

If you sell: what changes and what does not

Selling during or after a divorce is still a regular sale to a buyer, with a few extra steps:

• Both spouses on the same page. Agree in writing, with your attorneys, on the list price, how offers will be approved, who pays the mortgage and upkeep until closing and how the proceeds will be split.
• The disclosure rules still apply. A sale to an outside buyer is not exempt just because of a divorce. You give the buyer the Tennessee disclosure statement, or a disclaimer if the buyer waives it, before the contract is accepted, as TCA 66 5 202 and 203 require. My seller disclosure guide explains the form.
• The payoff comes first. Your closing company orders a payoff statement from each lender. My guide to selling a house with a mortgage explains payoffs, lien releases and escrow refunds.
• Wiring the proceeds. If proceeds are split and wired to two accounts, confirm each set of instructions by phone with the closing company, using a number you already know. My wire fraud guide explains why.

If one spouse keeps the house

Getting a name off the mortgage

This is the step people most often miss. The CFPB says divorce does not automatically change your relationship with your creditors. A divorce decree or property settlement may assign a debt to one spouse, but a creditor can still collect from anyone whose name is on the loan. The CFPB adds that taking your name off the title does not take your name off the mortgage, and that sending a lender a copy of your decree does not end your responsibility. You generally remain responsible unless the lender releases you in writing or the loan is refinanced without your name.

Refinance or assume

There are two common paths:

• Refinance. The spouse who keeps the home takes out a new loan in their own name and pays off the old one. Fannie Mae's Selling Guide treats a refinance to buy out another owner's interest, for example under a divorce settlement, as a limited cash out refinance if the home was jointly owned for at least 12 months before the new loan funds. All parties sign a written agreement on the transfer and how the proceeds are used, the spouse who keeps the home cannot receive any of the proceeds and must qualify for the loan on their own.
• Assume the existing loan. A CFPB report from December 2024 says a homeowner who wants to release the original borrower generally must assume liability for the loan after meeting the lender or investor's underwriting standards, and does not generally need to refinance to do that. The same report notes FHA guidelines allow an assumption by a confirmed successor in interest who has made the payments for at least six months before applying. My assumable mortgages guide explains how FHA, VA and USDA assumptions work.

Federal law also protects the transfer itself. Under 12 USC 1701j 3(d), a lender may not use the due on sale clause because of a transfer to a spouse under a divorce decree or separation agreement on a home with fewer than five units. And under the federal servicing rule, 12 CFR 1024.31, a spouse who becomes an owner through a divorce decree, legal separation agreement or property settlement can be a successor in interest. The CFPB says successor homeowners have a right to keep making payments, get information about the loan and be evaluated for a loan modification without assuming or refinancing first. Its report also describes homeowners being pressured to refinance, long delays and refusals to release the original borrower, so put every request to your servicer in writing and keep copies.

When the spouse who leaves wants to buy again

The CFPB notes that if you are still on the old mortgage, it can be hard to qualify for a new one. Fannie Mae's Selling Guide does give lenders some room: when a debt was assigned to the other spouse by a divorce decree or separation agreement and the creditor has not released you, the lender is not required to count that payment in your monthly debts, though it cannot ignore your payment history on the loan before the assignment. Alimony or child support you must pay for more than ten months is counted. Bring your decree to your lender. My mortgage preapproval guide explains how lenders review your finances.

Transfers between spouses: disclosure and transfer tax

When the home simply moves from one spouse to the other under the divorce, two Tennessee rules are different from a sale to a buyer:

• No disclosure statement. TCA 66 5 209 excludes transfers between spouses resulting from a decree of divorce or a property settlement stipulation from the residential disclosure law, along with transfers solely between people who already own the property together.
• No transfer tax. TCA 67 4 409(a) says the state's 37 cents per $100 recordation tax is not levied on domestic settlement decrees, domestic decrees or deeds that adjust property rights between divorcing parties.

The deed or decree still needs to be prepared correctly and recorded. In Coffee County, deeds are recorded with the Coffee County Register of Deeds in Manchester. Ask your attorney who prepares it.

Taxes on the sale

These are general points from IRS Publications 523 and 504. Ask a tax professional about your own situation.

• Transfers between spouses. Publication 504 says there is generally no gain or loss on a transfer of property between spouses, or to a former spouse if the transfer is incident to the divorce, meaning within 1 year after the marriage ends or related to the end of the marriage. Publication 523 says if you transfer your home or your share to a spouse or ex spouse as part of a divorce settlement, you generally have nothing to report.
• Basis carries over. Publication 523 says a home received in a divorce after July 18, 1984 keeps your former spouse's adjusted basis, rather than starting over at today's value.
• Selling a jointly owned home. Publication 504 says each spouse reports their own share of the gain or loss, and the share is determined by state law. Publication 523 allows up to $250,000 of gain to be excluded, or up to $500,000 for a married couple filing jointly, if you meet the ownership and residence tests. Publication 504 notes your filing status depends on your marital status on the last day of the tax year.
• If you moved out first. Publication 523 says that if you were separated or divorced before the sale, you can treat the home as your residence if you are a sole or joint owner and your spouse or former spouse is allowed to live in it under a divorce or separation instrument and uses it as their main home.
• If you sell before 2 years. Publication 523 lists divorce or legal separation as an unforeseeable event that may qualify you for a partial exclusion.
• Legal fees. Publication 504 says you cannot deduct legal fees for a property settlement, but you may be able to add them to the basis of property you receive, for example the cost of preparing and filing a deed to put the house in your name alone.

My capital gains guide covers the home sale exclusion in more detail.

A checklist for the house

• Talk with your attorney before listing, signing a contract or moving money tied to the home
• Keep the mortgage, taxes and homeowners insurance paid and in force until closing or the transfer
• Gather your deed, loan statements, payoff contact, insurance policy and records of improvements
• Get a value from recent nearby sales so both of you are working from the same numbers
• Put decisions about price, offers, repairs and proceeds in writing
• If one of you keeps the home, ask the servicer in writing about an assumption and release, or get a refinance started early
• Confirm the deed or decree transferring the home is recorded
• Pull your credit report later to confirm the old loan shows as paid or released

How I help

I do not give legal or tax advice, and I do not take sides. What I can do is prepare a free home value report from recent Coffee County sales so both spouses and both attorneys start from the same realistic number. If you sell, I keep both of you informed in the same way, put every offer in writing for both of you and your attorneys, and work with the closing company so the payoff, the split and the recording follow your agreement or decree. If one of you keeps the home, I am glad to share the value report with your lender. My guide on how to sell a house in Manchester walks through the selling process.

Keep reading:

• Selling a house with a mortgage in Tennessee
• Capital gains tax when you sell a home
• Assumable mortgages in Tennessee
• Tennessee seller disclosure explained
• Buying and selling a home at the same time
• All Manchester guides

Fair housing note: I work with every buyer and seller and follow the same steps for everyone.

This guide is general information from public sources, not legal or tax advice. Laws, lender rules and forms change, so ask a Tennessee family law attorney and a tax professional about your situation.

Deciding what to do with the house?

A clear, shared number makes every option easier to weigh. Call or text me at (615) 497 1658, or request a free home value report below.

Common questions

Matt Sargent is a Tennessee licensed affiliate broker with Keller Williams who helps buyers and sellers in Manchester and Coffee County. Call (615) 497 1658 or send a message.