Selling a House During a Divorce in California
A Comprehensive Guide
By Nancy Chillag
Divorce is, for most people who have gone through it, among the most painful and emotionally trying experiences they will have in their entire lives, maybe second only to the death of a family member or close friend. And yet, countless times in the process, difficult and important decisions need to be made.
They should be made with a clear head at a time when tempers often run very high. Having gone through the process myself, I definitely sympathize. While I cannot do anything to make going through a divorce less emotionally taxing, I will attempt here to clarify some of the challenges that accompany selling a house during a divorce.
Divorce can be a complicated process, especially when it comes to dividing shared assets like a house. In California, this process requires careful consideration and legal guidance to ensure a fair distribution. Here, I provide a step-by-step guide to help you navigate selling a house during a divorce, from understanding your legal rights to deciding the best way to sell the property.
Understanding Legal Ownership of Assets
First and foremost, it's crucial to determine who legally owns the property.
Community Property
California is a Community Property state as outlined in California Family Code Section 760. In California, any property acquired during the marriage is considered community property and must be divided equally between both spouses during a divorce. This is true even if only one spouse's name is on the title. California's community property laws aim for an equal division of marital assets, but judges can consider factors like each spouse's financial needs and contributions to the marriage when making their decision.
Separate Property
According to Monica Rodriguez and Angelo Lagorio, California family law attorneys, “some things are not community property. Separate property includes assets such as an inheritance, gifts received by one-person, monetary awards won in a personal injury lawsuit or settlement, etc. Anything that was yours before the marriage or acquired after the date of separation is considered separate property.” In a divorce, separate property will typically be allocated to the spouse who acquired the property. Despite these distinctions, the court can still make decisions based on the specific circumstances of the case. See California Family Code Section 770.
Commingled Property
Understanding the difference between community and separate property is essential. Community property includes all assets and debts acquired during the marriage, meaning both spouses have equal ownership rights. Separate property is anything owned before the marriage, received as a gift, or inherited. However, separate property can become community property if commingled. For instance, using joint funds to pay a mortgage, adding a spouse to the title of the house, or using community funds to improve or repair the house could all be considered as commingling.
Paul Nathan, family law attorney, gives this example. “. . . [If] you owned a house before you were married and you sold the house to make the down payment on a house you bought with your spouse, that down payment is considered separate property. However, as you and your spouse both contribute to paying off the mortgage on the house, the house itself is considered community property. Those commingled assets will have to be separated before property is divided in a divorce.”
During the divorce process, the court will determine the nature of the property. This classification will significantly impact how the property is divided. In some cases, spouses may disagree on whether a property is community or separate, making it essential to gather evidence and possibly seek expert testimony to support your claim. For more information see the California Courts Self-Help Guide.
Hiring a Divorce Attorney
To navigate the complexities of divorce and property division, hiring a divorce attorney is essential. An experienced lawyer can help you understand your rights and obligations under California law, which has unique rules and fees for dividing marital assets. Depending on the situation, you might need a judge’s approval to sell the house, making legal advice indispensable.
How Can a Divorce Attorney Help You?
A divorce attorney can assist in several ways:
- Legal Guidance: They can explain California's community property laws and how they apply to your case, ensuring you understand your rights and responsibilities. They can also lend their expertise to determine if certain property is community property or separate property.
- Negotiation: Attorneys can help negotiate settlements between spouses, aiming for an amicable agreement that avoids lengthy court battles.
- Paperwork: Divorce involves a significant amount of paperwork. An attorney ensures all documents are correctly filed and deadlines are met. Even if your divorce is uncontested and you and your spouse agree on how to divide the property, you should still hire a lawyer to make sure everything is put in writing. You never know when someone might change their mind down the road.
- Representation: If your case goes to court, having a knowledgeable attorney to represent you can be crucial for a favorable outcome.
You can also participate in Collaborative Divorce, recognized by the California courts, which is a process in which both parties work together with a mediator to reach a mutually agreeable resolution. Both parties would need to sit down in the same room with the mediator, so if you and your spouse aren’t able to be in the same room at the same time, this obviously won’t work.
Choosing the right attorney is critical. Look for someone with experience in family law, good reviews, and a communication style that suits your needs. A competent attorney can make the divorce process less stressful and more efficient.
Where to Find a Divorce Attorney
To find an attorney, you can use online information portals like Martindale-Hubbell, Avvo, and Lawyers.com to read client and peer reviews. You can also search for attorneys by practice area on directories like Nolo's Lawyer Directory, which includes attorney profiles with details about their experience and expertise. FindLaw's California law firm profiles include information like the firm's areas of law, office hours, and payment options, as well as attorney biographies and client recommendations.
Questions to Ask a Divorce Attorney
Here are some questions to ask an attorney before you hire them:
- What percentage of your cases are divorce cases, and how many divorce cases have you handled in the past three years?
- Do you have any special certifications or affiliations in the areas of divorce law or family law? (For example, in California, the State Bar of California Board of Legal Specialization grants the Certified Family Law Specialist designation to attorneys who demonstrate proficiency and pass a specialized exam in family law.)
- What is your current caseload? Make sure they aren’t too busy to handle your case.
- Who will be my main point of contact during my case—an attorney, or a paralegal or support staff?
- What is your fee structure, how much do you charge per hour, and what is your retainer fee?
- Do you anticipate needing to hire experts or consultants?
- Are you familiar with my spouse’s attorney?
“It's potentially more important to hire a divorce lawyer who listens to you and works not just to win a case but to do so in a way that's in the best interest of you and your children, if you are a parent. Sometimes, what's in your best interest isn't to stick it to the other person but to find a compromise that works for your family.” This according to Jennifer Guimond-Quigley, of Expertise.com.
Deciding How to Sell Your California Home
Once you understand the legal aspects, the next step is deciding how to sell the property. Here are the main options:
For Sale by Owner
This option avoids commission fees, potentially yielding more from the sale. However, it requires cooperation between spouses, which can be challenging during a contentious divorce.
Selling the house yourself means handling all aspects of the sale, including pricing, marketing, showing the property, and negotiating with buyers. This approach can save money but requires significant time and effort. Additionally, you'll need to ensure all legal requirements are met, which can be complex without professional help.
Using a Real Estate Agent
This is a common method, but it involves significant commission fees (up to 6% of the sale price). Both spouses will likely need to sign a listing agreement. This method is often suitable if one spouse cannot afford the mortgage alone.
Using a real estate agent can provide several benefits:
- Market Expertise: Agents have knowledge of the local market and can help price your home competitively.
- Marketing: They handle advertising the property, hosting open houses, and negotiating with potential buyers.
- Paperwork: Agents manage the paperwork involved in selling a home, ensuring all legal requirements are met.
However, it's important to consider the cost. Agent commissions can be high, and you will need to agree with your spouse on selecting an agent and the terms of the listing agreement. In addition, it can take months to close a deal listed with an agent.
Cash Home Buyer
This is the quickest and often least stressful method. Cash home buyers can expedite the sale process without the need for staging, realtor fees, or renovations. This option is ideal for couples looking to sell quickly and divide the proceeds efficiently.
Cash home buyers purchase properties "as-is," meaning you don't need to make any repairs or improvements. This can be particularly beneficial if you need to sell the house quickly. The downside is that cash offers may be lower than what you could get on the open market. However, the speed and convenience often make this an attractive option for divorcing couples.
Alternatives to Selling
Sometimes sale of the house isn’t the best thing to do. If selling the house isn't feasible or desirable, consider these alternatives:
Co-Owning the Property
This can involve renting out the home or living on the same property if it's large enough for separate units.
Co-owning the property requires a high level of cooperation and trust between spouses. You'll need to agree on how to manage the property, split expenses, and handle rental income. This option can provide ongoing financial benefits but may also prolong financial entanglement.
Buying Out the Other Spouse
One spouse can buy the other’s share. This will require mutual agreement on the sale price.
A buyout allows one spouse to keep the home, often making it easier for children if they are involved. The buying spouse must have the financial means to refinance the mortgage in their name and compensate the other spouse for their share of the property's equity.
Continued Occupancy by One Spouse
Sometimes one spouse will allow the other spouse to continue living in the house (usually with the children) for a period of time and then sell the house. It is important to determine who is going to pay the bills and when the house will be sold.
Dividing Other Marital Assets
Instead of selling the house, you can divide other assets like savings, investments, or personal property.
This approach can be practical if the home holds significant emotional value or if one spouse has a strong attachment to the property. By compensating the other spouse with other assets, you can achieve a fair division without selling the house.
What if One Spouse Doesn’t Want to Sell the California House?
It’s always easier if the divorcing spouses can agree to sell a property, but that doesn’t always happen. Can you force your spouse to sell the house? Yes, but usually only with a court order. During the divorce, a judge might mandate the sale for property division. If they still refuse to cooperate, the court can appoint a receiver to handle the sale process, ensuring it proceeds despite the lack of cooperation.
Unfortunately, this really runs up attorney fees and prolongs the process.
“The better you are at working together to make decisions for your changing family structure, the better for your bank account and for your chances of emerging from the divorce with a decent relationship with your ex.” according to Emily Doskow, attorney and mediator.
Ultimately Selling the California Home
Selling Before the Divorce is Final
If you aren’t going to take the alternative approach, you can sell the house. Many people are surprised that you can sell a house prior to the divorce being finalized. This must be done with court approval or mutual agreement with your spouse. Selling before the divorce is finalized can simplify the property division process. However, you must ensure that the sale complies with any court orders and that both spouses agree on the terms.
Things You Need to Do to Sell the House
Once you decide to sell the house you will proceed with the sale. If opting for a cash home buyer, you'll receive an offer promptly, allowing you to decide whether to accept it and move forward. This option minimizes delays and provides immediate funds, which can be crucial during a divorce. It is certainly the easiest method.
When selling through a real estate agent or by owner, the process involves several steps:
- Preparing the Home: Clean, declutter, and make necessary repairs to make the home more appealing to buyers.
- Marketing the Property: List the home online, put up signs, and hold open houses to attract buyers.
- Negotiating Offers: Review and negotiate offers with potential buyers, aiming for the best price and terms.
- Closing the Sale: Complete all paperwork, address any contingencies, and finalize the sale.
Each method has its own timeline and considerations. For instance, selling through an agent or selling it yourself may take several months, while a cash sale can be completed in weeks. Selling through an agent or selling it yourself will require ongoing involvement with your spouse, while a cash sale only requires agreement on the price and the closing date.
Consider your financial needs, the housing market, and your divorce timeline when deciding how to sell.
Dividing the Proceeds
After the sale, the proceeds must be divided according to the divorce decree.
The time required to receive the funds depends on the sale method and the buyer’s financing process. Cash sales typically provide quicker access to funds, which can simplify the division of property. Selling to a traditional buyer will require more time because they will need to get inspection and get their loan approved and funded. This typically takes 30 to 60 days after you are under contract to sell to them.
The division of proceeds involves several steps:
- Paying Off Debts: The proceeds are used first to pay off any outstanding mortgages, liens, or home equity lines of credit.
- Deducting Costs: Next you must pay the selling costs, such as real estate agent commissions, escrow fees, closing costs, and any repairs that were made to the property but not paid directly (termite work, buyer requested repairs, lender required repairs, etc.).
- Dividing the Remainder: Once all those items are paid, you will split the remaining proceeds according to the terms of the divorce decree.
In some cases, disputes may arise over the division of proceeds. For example, if one spouse made significant contributions to the home (such as a down payment), they might claim a larger share. Resolving these disputes may require negotiation or court intervention. If it is not resolved before the property is sold, the proceeds will be held in a court ordered trust account until a decision is made.
Tax Consideration to Selling a California House in a Divorce
Will there be tax consequences to selling your home? The answer is yes.
The taxes you pay will depend upon your tax rate, your filing status, whether you made a profit on the sale, and how long you owned the home. Advice from an accountant is recommended.
Capital gains tax can be complex in a divorce. If you sell the home as a couple, you can exclude up to $500,000 of gain from your taxable income. If sold individually, the exclusion is $250,000. Consulting a tax professional can help you understand your specific situation and minimize your tax liability. For more detailed information, check out IRS Publication 523.
In addition, you need to consider your property tax basis. If you bought your home some time ago, say for $200,000, your property tax rate was based on that price. If you are over 55 when you sell your home, you have the right, under certain circumstances, to transfer that tax basis to a new property you purchase. This can be very beneficial if you end up buying a $400,000 home, which would have a much higher property tax basis (and thus higher property taxes) than the $200,000 home. To understand these tax issues if you intend to buy a new house in the future, check out the California State Board of Equalization Information Sheet.
It is strongly recommended that you obtain advice from a certified tax professional, so you understand all the implications.
Conclusion
In conclusion, going through a divorce is not an easy process, especially when it requires the division and/or sale of assets. It is an emotional process and sometimes arguments can occur and get heated. In addition, you need to understand all the laws involved so that you come out of the divorce in the best possible condition.
If you need to sell your house during or after a divorce, Primary Home Solutions can help you do that. We pay cash. You don’t need to make any repairs, since we buy the house as-is. And we can close on your schedule. There are no hidden fees (we cover all your normal closing costs). There are no commissions.
Divorcing couples in Sacramento, Fairfield, Elk Grove, Citrus Heights, West Sacramento, Woodland, Roseville and all-over northern California have found cash home buyers for their marital property to be the solution they needed.
Primary Home Solutions makes selling your house during a divorce easier and faster than using a real estate agent.
To learn more about how we can help you sell your house in a California divorce and get a cash offer for your California home, just reach out to us today at 916-260-2040 or fill out the form below.
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About the Author:
Nancy Chillag is a real estate investor and has been buying and renovating homes for more than 30 years. She has purchased real estate all over the San Francisco Bay Area, Greater Sacramento, Central Valley and even out of state. She has worked with numerous homeowners dealing with foreclosures, inherited property, massive repairs, relocation, and bad tenants, to name a few. She is the president of Primary Home Solutions Inc.
