Buying Out Your Spouse in a California Divorce
This article provides an overview of the differences between a buyout and sale of the family home during divorce.
Can you Afford to Buyout your Spouse and Keep the Family Home?
During a divorce, you’ll be faced with many decisions that will affect your long-term financial security. Couples tend to have strong attachments to the family home, so decisions about whether to keep the home or sell it can be very emotional, especially when children are involved.
If you’ve been granted more parenting time with your children, you may feel like you should keep the family home. Many divorcing parents want to provide their children with some stability amidst all the change. Although continuity is important, staying put might not be the best financial decision for your family.
While it would be nice to remain where you’re comfortable and avoid the hassles of moving, it’s critical to have a realistic sense of whether you can actually afford it. If you give up everything else (eg., liquid assets, such as savings and retirement accounts) to buyout your spouse, and then find that you can’t cover the mortgage, property taxes, and maintenance, you may end up in serious financial trouble after your divorce.
If you’re certain that you can afford the home on your own, and your spouse agrees to let you have it, you’ll need to “buyout” your spouse’s interest in the property.
How to Buyout Your Spouse
California is a “community property” state, which means courts will presume all property (including a home) acquired, purchased, or earned during marriage is part of the marital estate, which must be divided 50 - 50 between the spouses upon divorce.
So rather than “divide” the home, one option is to buy-out your spouse’s one-half interest in the home. First, you’ll need to determine a mutually acceptable buyout value. If you can’t agree on a value, you should hire a professional appraiser to determine the current, fair market value of the home. The buyer spouse must come up with 50% of the equity (value minus the debts on the home) in order to “buy out” the other spouse's interest.
So, for example, if you have a community property home that’s been valued at $500,000, with a $400,000 mortgage, the total equity is $100,000. You will have to pay your spouse $50,000, or one-half of the equity in the home.
You can do this pretty easily if you’ve got enough separate property cash available. If not, you can “trade” in some of your community assets; if you have $100,000 in community savings, you can transfer your $50,000 interest in the savings account to your spouse in order to cover the buyout amount for the home.
Your spouse will also be entitled to any separate property contributions he or she made towards the purchase of the home. For example, if your spouse contributed $20,000 in pre-marriage savings towards the purchase of the home, your spouse is entitled to be reimbursed that $20,000 upon the sale of the home. That right is not lost by virtue of a buyout. You’ll have to buyout both your spouse’s equity ($50,000), and cover the separate property contribution ($20,000), unless your spouse agrees to waive (give up) the separate property claim.
Separate property reimbursement claims can be very complicated. If you have questions about this, you should contact an experienced family law attorney for help.
When calculating value, you should also consider any potential adverse capital gains taxes if you plan to sell the home in the future. You should speak with a tax advisor to help you figure this out.
Selling Your Home in Divorce
If you and your spouse prefer to sell your home, you’ll need to work out many issues, including:
- which spouse will live in the home and cover expenses, such as the mortgage , utilities, and property taxes until the home is listed and/or sold
- finding a real estate agent you both trust to sell the home
- the listing price
- the process for reviewing and accepting offers, and
- how to cover the costs related to the sale of the home (couples typically agree to share these costs equally, but it’s important that you make these agreements clear).
Typically, spouses will split the net sales profits evenly. So, if the net profit is $100,000, each spouse should receive $50,000 from the sale. Separate property reimbursements, if any, will also need to be addressed. (See above).
If you and your spouse can’t agree what to do with the family home, you’ll probably end up in court, where a judge will decide.
Can a Court Award the Home to One Spouse?
California courts must divide community property equally between the spouses. So, if a case ends up in trial, the court will typically look at all assets that have yet to be divided and order a net equal division.
However, where economic circumstances warrant, the court may award a community asset (eg., like the family home) exclusively to one spouse on such conditions as the court deems proper to effect a substantially equal division of the community estate.
The conditions will usually include an “equalizing payment” to the other spouse, which means that when a community property asset is awarded to one spouse, the other spouse must be compensated by a cash payment or an offset/award of other community property (eg., $50,000 in one spouse’s home equity may be awarded or offset with an award of 100% of a $100,000 community property savings account.)
Courts must consider the following economic circumstances, which may support this type of property division:
- the nature of the property
- any emotional attachments
- the business acumen of both spouse and how that may impact which spouse is in the best position to keep the property (eg., if one spouse holds an MBA and the other spouse is an artist, the court may find it makes more sense for the MBA to keep the financial planning business, and the artist to keep the art gallery), and
- the spouses’ financial positions (ability to cash out the other spouse and maintain the expense and liabilities associated with the property after the divorce).
Can a Court Order My Spouse to Sell the Home?
Yes. When it comes to real property, courts can order a sale. This is actually quite common, especially now, when many couples are facing difficult financial times. When couples separate and one spouse moves out, there are suddenly two households to maintain, often with only one income. This scenario leaves most couples with no choice but to sell the family home to a third party.
one spouse refuses to sell the home, the other can head to court and file a
motion (legal paperwork) asking a judge to order that the house be listed for
sale immediately. If the court finds it is appropriate, it may order that the
family home be listed for sale, and the profits divided evenly and/or divided
in such a way to ensure separate property reimbursement claims are paid.
Usually, you have to wait for the final divorce trial on all issues to ask the court to divide property. But, if you can show a dire financial need to sell the home immediately, (eg., you can’t afford the mortgage payments and they are late or short every month) you may be able to bifurcate (sever) this matter, and get this issue in front of a judge right away.
If you are facing this issue in your divorce, you should contact an experienced family law attorney for help.
Learn more about this issue in What to Do With the House When You Divorce, by Emily Doskow.
California Family Code §§ 2010 and 2550.
California Family Code § 2601.
See Marriage of Fink, (1979) 25 C.3d 877 regarding equalizing payments.
CRC 5.175(a) regarding bifurcation.