Often the family residence is the most valuable asset in a marriage and deciding what to do with the house when the marriage breaks apart is a hard emotional process because the family home holds many sentimental memories. However, the objective of the family court is to equitably divide the community estate and there are a few options available depending on the quality of the relationship between the parties and their respective financial standings.
Keeping the House
One party may want to keep the house after the divorce and will have to buy out the other spouse. First, the party keeping the house will need to determine if s/he is able to afford the house after the dust settles. Not only will they likely have to refinance the property to remove the other spouse from any loans, they may have to access the equity in the home to buy out the other spouse increasing their mortgage and household expenses. In either case, the spouse purchasing the property will have to qualify for a new loan without the income from the other spouse. It is advisable to speak with a lender and get pre-qualified if you are considering this option. Finally, you do not want to find out after the divorce is final that you cannot afford the home and have to sell the property because then you alone will be responsible for all costs associated with selling the property. It is best practice to be realistic about your finances before you pursue something that may not be in your best financial interest in the long term.
Next, the parties need to agree to a fair market value for the house to determine the amount of equity. If the parties cannot agree on a value then an expert may have to be retained to render a value. Once the fair market value is established then the amount of equity is determined by subtracting any and all debts from the value. Unless there is a separate property claim, the equity will then be divided equally between the parties. For example, if it is determined that the family residence has $100,000 in equity then each party is entitled to $50,000 as their share of the value. If you are buying out the other spouse, you need to be able to pay this sum from some source and assume the full responsibility of maintaining the property after the fact.
Selling the House
The parties may decide it is best to sell the house and divide the proceeds. In this case, the parties should plan to work together with a mutually retained real estate agent to set a reasonable listing price and terms of the sale. If one or both parties still reside in the home at the time it is listed for sale, then they need to provide access to the property for showings. The home may also need repairs or maintenance to get the best value for the property which should be agreed upon by the parties before any work is commenced. If the parties have not reached an agreement as to how to share the proceeds upon the close of sale, the funds may be held in trust by counsel until an agreement can be reached. There are also tax breaks available if you sell the house before the divorce is final.
In some circumstances, parties that still have good communication and respect may co-own property after a divorce. It is good practice to change title so that it property reflects the agreement of the parties’ ownership interest and the parties set forth clear terms in writing if they are going to own real property together after divorce setting forth who is financially responsible for the mortgage, taxes, insurance, maintenance and other related expenses as well as circumstances that may cause the property be sold and the co-ownership to be severed.
In general, it is important to think about options if you own a family residence with your spouse and are getting divorced. If you need further assistance with this or any other family law issues, contact us at Loeser Law for a consultation.
Shannon R. Loeser, Esq.
Certified Family Law Specialist
28202 Cabot Road, Suite 520
Laguna Niguel, CA 92677
Tel: (949) 392-5050