One of the most common questions asked by clients’ is what happens to the house. Sometimes, there is more than one piece of real property that has to be addressed, but usually it’s the house that your family is currently living in.
Decisions about your house are often emotional; in many cases, it’s the only home your children have ever known. For the Court, however, it’s just another asset that must be divided and in most cases it’s among your most valuable assets, which means it needs to be addressed wisely.
Generally speaking, you have two options. Sell the house or find a way to keep it after the divorce.
Even under the best circumstances, selling a home can be stressful, however, selling your home in middle of a divorce can be even worse. Truthfully, it doesn’t have to be.
Every divorce presents a unique set of circumstances, which can have a significant impact on the ability to maximize the amount of money that is ultimately received by the divorcing couple. From our perspective, maximizing the amount of money and assets you retain after your divorce is critically important because money is hard to earn, and life is expensive. As such, we want to help you keep as much money as possible from the sale of your home.
Once a divorce is filed, Family Code 2040, known as the Automatic Temporary Restraining Orders, comes into play, which prohibits both parties from unilaterally selling, transferring, or borrowing against the home without a Court order or an agreement with the other party. The Court will almost never order a house sold before trial unless the house is at risk of being lost to foreclosure. If the house becomes at risk, however, expect the Court to order that it be immediately sold to protect the parties from losing a significant asset.
It is important to understand the how the Court views your property. First, there is a presumption that if the property was acquired during marriage that it is community property, which is not always the case. Second, being on title to the property and being responsible for the loan is different. Frequently, often during a refinance, one party is dropped from the title to the house, so that a loan can be obtained by the partner with better credit, with the understanding that once the loan closes that they will be put back on title. Sometimes that never happens, and the Court is asked to intervene during the divorce. Remember, the presumption is that all property acquired during marriage is community property unless that presumption is rebutted by evidence proving otherwise. This is an area where having an experienced Certified Family Law Specialist can really help out.
When selling your property, it is important to remember that both your interest and your ex’s interests are almost always the same – to maximize the sales value of the property and receive as much money as possible. This can, however, be difficult at times, but remember the reward for doing so can be huge.
When valuing the interest in your house, remember that Internet websites like Zillow have no idea what the inside of your house really looks like and instead use algorithms to guess at its value. Sometimes their guess is not even close. A better alternative is to ask a qualified real estate agent (or appraiser) to conduct a Comparative Market Analysis, which requires the realtor to visit your house as part of the analysis. This is usually done before a listing price is suggested.
A common problem in making decisions during a divorce is trust. When one party makes a suggestion, the other party is suspicious of the suggestion, no matter how straightforward. For that reason, if your friend or family member is a real estate agent, they probably aren’t going to get the listing. Plus, it’s often unfair to put them in the middle of your divorce. For that reason, using a reputable realtor from a well-known company is usually the best choice. Often the names of some potential realtors are given to the other side, so they can choose which one to use.
When calculating the interests in the proceeds from the sale of the property, there are a few additional considerations that need to be made. First, was the house acquired during marriage entirely with money earned during the marriage? If so, the proceeds will be divided equally. If one or both parties used money earned before marriage or received by gift or inheritance as a down payment, then those funds will typically be returned to that party, before the remaining proceeds are divided. If the property was purchased before marriage, but payments towards the mortgage were made with money earned during the marriage then a formula established in the family law cases Marriage of Moore and Marriage of Marsden provide guidance on how to split the proceeds. These, of course, are just a few of the considerations that come into play when dividing sales proceeds. Also, remember that that any money you will get from the sale will be after the existing loan(s) are paid off and the costs of sale (including the realtor and escrow fees) are deducted. Additionally, if you made any upgrades to the home using the HERO (Home Energy Renovation Opportunity) or PACE (Property Assessed Clean Energy) program, those loans will have to be repaid through escrow, too.
If one of the parties is considering buying out the interest of the other owner, it’s important to be realistic. First, is your credit score, income and debt ratio enough to actually qualify for a loan on your own? Remember that being pre-qualified for a loan is not the same as receiving a loan from the bank – often pre-qualification letters are little more than an invitation to apply for a loan where the qualification will be much more difficult. Additionally, do you really want to stay in a house with bad memories. Maybe so. Also, it’s important to remember that if the existing loan is in both parties’ names, that the mortgage company is not going to care who got the house in the divorce. They have a contract with two people and unless a new loan is obtained (releasing the other party), they are going to expect that both parties will continue to be responsible for payment of the mortgage. This can have some significant unintended consequences if the person who received the house in the divorce fails to pay the mortgage. In that case, the mortgage company will ding the credit of both parties and pursue legal action against both parties because that is who their loan contract is with. Additionally, the home loan will continue to affect the borrowing ability of the party who no longer lives in the house as long as the loan is in their name, too. This may prevent them from truly moving on with their lives and later buying a new home, or car or other asset that needs a loan to acquire.
In some cases, one parties’ interest in the house might be traded during the divorce for an interest in retirement savings, a jointly owned business or for some other asset. Doing so often makes sense, especially if there are young children already established in school and other activities in the neighborhood, however, because there are also tax and other implications, these decisions should be made with the guidance and advice of a trained legal professional, which is why using a Certified Family Law Specialist makes the most sense. After all, why not use the most skilled professionals available to you?