DIVORCE…and Real Estate
(What you need to know)
Am I Forced to Sell After the Divorce?
Divorce may result in the sale of your home, but there are alternatives. Divorcing couples face different challenges, including dividing their assets and debts. In community property states such as California, the law treats the couple as a single entity. The husband and wife have equal ownership of assets and equal responsibility for debts they acquire during the marriage. The marital home often qualifies as both the largest asset and the largest debt. Whether it must be sold as part of the divorce agreement depends on the couple’s preferences and their financial situation.
Community Property and Debt:
According to the California court system, your home is probably community property if you and your spouse purchased it while you were married and with money you earned during your marriage. And your mortgage loan is a community debt even if it’s in only one of your names. The likely outcome of this aspect of your divorce is that the judge will subtract the value of your community debt from the value of your community property and divide the remainder equally between you and your spouse.
Selling the Home:
According to Attorney Aaron Lawson, writing for Expert Law, if you and your spouse decide to sell, or the judge orders you to sell, you’ll choose a real estate agent and work with the agent to list the home for sale. The spouse who lives in the home while it’s listed is generally responsible for keeping it ready and available for showings. You’ll repay your mortgage loan from the proceeds from the sale. Any remaining money goes into a trust account pending the judge’s decision about how to divide the money.
Alternatives to Selling:
A husband or wife who want to remain in the home can buy out the other spouse. The easiest way to do this is usually for the spouse who’ll keep the house to assume the existing mortgage – transfer it into his or her name to remove the spouse’s name from the loan. If the mortgage isn’t assumable, the spouse can apply for a new first mortgage loan to pay-off the existing loan and pay the spouse for his or her share. The spouse who accepts the buyout signs a quitclaim deed to relinquish ownership of the home. Other alternatives to selling include renting the home to a tenant while the couple decides on a permanent solution.
In cases where the mortgage balance is higher than the home’s value, refinancing is usually not possible. The couple’s negative equity position means there is no asset to divide; there’s only debt. California attorney John Griffith notes in his law firm’s blog that a short sale is often the best option for dealing with the an upside down mortgage. A short sale is one in which the lender allows the owners to sell the home for less than they owe on their mortgage. A short sale can be a long and difficult process, and it negatively impacts the owner’s credit. It is, however, a better alternative than walking away and allowing the bank to foreclose.
Community Property vs. Separate Property
Not all property owned by the spouses is considered community property. Some property is kept separate and called ‘separate property.”
Any property that’s owned before the parties marry, is considered separate property. Each spouse is allowed to keep their separate property if the marriage is dissolved or annulled. Similarly, inheritances and gifts are considered to be separate property not subject to the laws of community property. Property purchased during the marriage using proceeds from the sale of separate property is considered separate property. Finally, property purchased after the date of separation is considered separate property even though the parties are still legally married.
Separate property can become so commingled in the marriage that it cannot be separated any more. In this case, separate property becomes community property.
The issue of separate property become important during s divorce or annulment. In a divorce, separate property is kept by the spouse who owns it rather than being divided equally between the two spouses. It’s important to keep good records of property that’s separate vs. community property, especially if you want to keep it in the event of a marriage breakdown.
Spouses can change separate property to community property by signing a written agreement stating the change of ownership type. Similarly, the spouses can sign an agreement that community property will be kept separate. This agreement can be made before the marriage (a pre-nuptial agreement) or during the marriage.
HOW DO I KEEP THE HOUSE…In a Divorce?
The court considers a number of factors when deciding what to do with the marital residence during a divorce. California applies the community property standard in dividing assets and debts in divorce proceedings. Community property means that each spouse generally receives 50 percent of the assets and debts accumulated during the marriage. In most divorce cases, the marital residence is the most significant asset owned by the parties. If you want to keep your home in a divorce proceeding in California, follow the course that will help you achieve that objective.
1. Stake out a position at the start of settlement negotiations with your spouse that includes your desire to maintain possession of the residence. Make certain your spouse understands that is a goal.
2. Develop a list of other assets you’re willing to let your ‘husband/wife’ have – including cash and other investments – in exchange for your keeping the house. Because California is a community property state, you and your spouse should end up with assets valued at about 50 percent of the total worth of all property.
3. Try to search a settlement with your spouse. Ideally, you can develop an overall settlement addressing major divorce issues, including the house and other material assets.
4. Schedule a court hearing on outstanding divorce issues. If you cannot reach an agreement with your spouse on possession of the home and other matters, a judge will make the decision.
5. If you have children, advise the court that you want residential custody of them. If you seek custody of your children in a divorce you have a better chance of keeping the house.
6. Provide the court with your list of how to distribute assets, including setting aside the house to you, in accordance with the community property standard. If your spouse ultimately agrees with your proposal, you have a better chance of prevailing.
HOW DO I SPLIT A MORTGAGE PAYMENT in a Divorce?
California is a community property state. A major point of contention in most divorce cases is the division of assets and debts. Each state imposes a standard dictating how assets and debts are divided by court order. Although parties to a divorce have some leeway when negotiating a property settlement, they must use the property and debt division standard for guidance. California joins a total of about 10 other states in using the community property standard with regard to asset and debt division in divorce, according to Divorce Net. The standard dictates that each party to a divorce is assigned 50 percent of assets and debts from the marriage.
1. Agree with your spouse regarding the percentage of the mortgage loan to assign to each of you. Keep in mind the community property standard which presumes that each spouse is responsible for 50 percent of this debt, according to “The Complete Divorce Handbook: A Practical Guide” by Brette McWhorter Sember. If you deviate too significantly from the 50 percent assignment of responsibility, be prepared to justify your decision to the judge presiding in your case.
2. Obtain a property settlement agreement form. The form is available from the clerk of the California superior court where your divorce case is filed. Similarly, county court clerks in other states maintain these types of forms for use by individuals without attorneys.
3. Complete the property settlement agreement form, following the instructions provided by the superior court clerk.
4. Include a specific provision regarding how responsibility for the mortgage is divided betwen the spouses. For example, insert a statement that each spouse is responsible for 50 percent of the outstanding mortgage loan debt at the time of divorce.
5. Set forth the manner in which the mortgage loan payments will be made. For example, indicate that one party will make the payment each month, with the other spouse reimbursing the party making the actual payment. In the alternative, each spouse makes a 50 percent payment to the mortgage lender each month.
6. Sign a property settlement agreement. Both parties must sign the document.
7. Deliver a copy of the property settlement agreement to the judge’s chambers. At the conclusion of the divorce proceedings, the judge incorporates the property settlement agreement into the final divorce decree.
This information is provided as copy from another source. Scott Cary and RE/MAX Executive are not qualified to provide tax or legal advise,
all parties looking for such are encouraged to contact the proper legal authority to answer their questions.