It is NOT intended to replace the expertise of a financial analyst, divorce and/or family law attorney.

My extensive divorce process experience is coupled with an indispensable (and highly recommended) resource, ‘Nolo’s Essential Guide to Divorce’ by Attorney Emily Doscow. This book will be directly quoted and paraphrased often. However, there is no replacing it, the advice of a legal expert, a financial analyst, or this emphasized message from Ms. Doscow’s book: Take the high road…

With the court’s approval you and your spouse can divide up your property in whatever reasonable manner you wish. Negotiation can take place by:

·       working with your spouse directly.

·       working with your spouse through mediation.

·       using helpful, collaborative attorneys. (See bottom of page for attorney look-up tools.)

·       fighting it out using lawyers who represent you in a contested case and let a judge or arbitrator decide. (This is not considered taking ‘the high road’ and will take the longest time and greatest amount of funds.)

The biggest fight: What is jointly or separately owned?

California is a community property state. Community property means ‘most property acquired during a marriage belongs to both spouses unless a couple agrees otherwise’. In California it goes a step further by dividing the property equally. This does not mean there can’t be trade-offs on the balance sheet of determining what is equal. (See below in ‘What to with the house’.)

Existing separate assets, (this includes real estate, stocks, bonds, artwork, etc.), that were obtained previous to the marriage, gifts provided to only one spouse, inheritance provided to only one spouse, personal jewelry, etc., do exist.  What does / does not qualify should be discussed with a legal expert.

What to do with the house:

Along with the home being one of a couple’s largest assets, the value is often one of the most highly contested. Often times the home becomes one of the most prominent symbols of dreams and love lost.  It can also be the center of what determines the outcome on other issues such as; where each spouse lives and their financial support, where the children live and their transportation, financial, educational and emotional support and how other assets are divided.

The three most common ways to deal with the family home during a divorce are to:

·       agree that one spouse will buy out the other,

·       agree the two of you will continue to own the house together, or

·       sell your home / investment property / vacation home

 Note: Remember to consider tax implications for each solution.

One way to deal with the family home is for one spouse to buy out the other’s interest. When there are children involved, the buy-out is most often done by the (physical) custodial parent.

How it’s done:

·       More often than not a buy-out is accomplished by refinancing the home and receiving ‘cash-out’ from the transaction to pay off the selling spouse. Naturally, this will mean the spouse doing the refinancing will need to qualify on their own for the required loan, and there will need to be enough equity in the home for a lender to allow for the additional ‘cash-out’.

·       It can also take place over time. This is a more intricate solution as there are many trade-offs spouses might consider. These can include temporary or permanent modifications to child or spousal support, a change in the percentage of monetary or physical assets each spouse receives at the time of settlement, etc.

·       The most efficient way of determining the value of the home is to have a professional appraiser provide a comprehensive report. The cost should be between $300.-$750., depending on the size of the home and its location.

Spouses may want to consider the additional cost of deferred maintenance and loan closing costs when refinancing. These items may need to be calculated into how the proceeds are divided between them. 

Advantages:

·       The house provides continuity and stability for the child/ren.

The ability to wait for real estate market conditions to improve.

·       Finality of the disposition of the home.

Risks / Disadvantages:

·       The selling spouse may lose out on market appreciation.

The buying spouse may experience market depreciation.

·       Buy-out may cause a financial stretch or burden on the buying spouse.

When a buy-out is done over time each spouse may have a change of circumstance that could disrupt the Agreement. These changes may include; a new partner enters the picture for either / both spouses, job loss or reduction in pay (for either spouse), death of a spouse, change of heart, children leaving or changing homes, bankruptcy for one or both spouses, etc.

·       Buy-out over time will also mean both spouses will carry the mortgage lien/s on their credit. The non-custodial parent’s ability to buy another home for themselves could be severely impacted by the debt to income ratio factors.

If the divorce is amicable, (as spouses will need to continue communication beyond that of matters pertaining to the children), and you have thoroughly considered the ‘Risks / Disadvantages’ listed above, and they do not dissuade you – this may be an option. 

There are even couples who have chosen to continue to live together after being formally divorced.

Or, when there is no animosity and the couple works well as a team – there are couples who have chosen to rent an additional home or apartment and switch in and out of their family home with their ex-spouse. This allows the most continuity and stability for the children.

If neither spouse wants, nor can afford to, stay in the house – you can put it on the market. If there is sufficient equity in a home this will mean having divisible funds.  

If the home is ‘underwater’, it could mean involving your mortgage lien holder and requesting a ‘short sale’. (This is when the lien holder agrees to having the house sold for less than what is owed on it, thereby being ‘shorted’ funds.) A ‘short sale’ will not provide any profits to the homeowners.

Disadvantages of selling:

It is important to keep in mind that before sales proceeds can be divided, you will have to pay off the mortgage, any equity line or second mortgage, broker’s fees and closing costs. 

You need to consider any capital gains taxes that may apply.  

Uprooting the children at a difficult time for them.

Timing into the real estate market may not be advantageous. With the upheaval in the real estate market, most homes in California have lost a varying percentage of their market value.   

Advantages of selling:

The major asset’s disposition is finalized. For less than friendly divorces, this pivotal point can be very beneficial as it will lessen undesired discussions and further agitation with negotiations.

For friendly and semi-friendly divorces, (as well as the contentious divorce), the selling of the home can be the linchpin in a gambit of decision making processes; domiciles (for spouses, children, and pets), support, asset division, visitation, when and who to tell about the divorce, etc.

Whether it is selling the family home, vacation home, investment property or timeshare, by many parting couples this finality of the divorce can be seen as a positive step forward.  Neither spouse will need to be reminded of better times by living or visiting where those times were once created.

When there is sufficient equity in a home, (the difference between what is owed on a property and its market value), each spouse has the opportunity to walk away with funds that will assist them in getting their new life started.

Choose a real estate agent or Realtor:  This –can- be (or, at least initially appear to be), one of the easiest steps.  There are a number of criteria involved in making this choice. (See “Choosing a Realtor”.) Some of the things you will want from your agent:

·       Unbiased, non-judgmental guidance. 

·       Communication that is accurate, empathetic, timely, thorough, and patient. Patience will be key, as your proceedings may take many months, or years, to settle. They need to stand with you throughout it all with consistent (and in ‘difficult’ partings, dual) communication.

·       Market knowledge. You will require initial and on-going snapshots of the value of your home. This will mean receiving a ‘Comparable Marketing Analysis’, also known as a ‘comps’ report, on a regular basis.

·       A comprehensive, easy to understand marketing (of your home) plan. (See ‘Marketing your home’.)

·       If your home is ‘underwater’ your agent will need to deftly work with your mortgage lien holder/s. Do they have the experience it will take to ensure you are included in beneficial government sponsored programs?   

·       Divorce proceedings experience. Has the prospective agent worked with family law, divorce attorneys and paralegals?

Settling on an asking price:  Admittedly, and once the agent or Realtor has provided you with a ‘comps’ report, I agree with the author of “Nolo’s Essential Guide to Divorce” when she writes; ‘Take the agent’s advice about your asking price—that’s one of the main reasons you’re using an expert instead of selling the house yourself. Turning that decision over to the agent will eliminate one potential conflict. If you think the agent’s opinion is really off-base, you might need a different agent (or a reality check of your own).’

Preparing to show the house:  Who, when, how, and with what funds the house will be prepared is negotiated through the agent, if need be. In today’s market, your agent will most likely suggest your home is well cleaned and staged. If one of the spouses is still living in the home during the sales process, staging it with their furnishings, even a minimal amount, can be an option. (See Tips...)

Dividing the cash:    By the time your home is on the market you should know how the proceeds from the sale are going to be distributed. An escrow company (where funds are held and paid through) will divide up the funds according to the instructions they receive.

The instructions will come either jointly from the spouses or from an Agreement between them that is delivered by their respective attorneys. Items that are paid via escrow must be agreed to by all parties prior to the close of escrow, received in writing, and could include:  

·       Marital debts, such as; credit cards, installment loans, college tuition, delayed child or spousal support, etc.  

·       Outstanding liens on the home, such as; property taxes, mechanics' liens, all outstanding mortgage liens (first, second, etc. mortgages, equity lines, lines of credit, and home improvement loans).

·       Commission to your agent as well as to the buyers’ agent.

·       General closing costs generated by the title and/or escrow company.

·       Credits (aka contributions) provided to the buyer/s. These credits, if any, would be agreed to as part of the Purchase Agreement you and your spouse signed during the offer process. They can include, but are not limited to; repairs and / or maintenance, retrofitting, new appliances, flooring, roof, clean-out, inspections, home warranty, (the buyers’) closing costs, etc.

Important Note: If one spouse is solely making the mortgage payment/s from their own, newly separated funds throughout the divorce process -- reimbursement (or, an agreed upon percentage of it), could also reduce the proceeds distributed. There are tax considerations involved. An expert in the field should be consulted.