Determining who will keep the family home-- or whether it will be sold to a third party-- can be one of the most difficult decisions in a divorce. A house is often the family’s most valuable asset. In addition, people have an emotional attachment to their home. And, when there are children involved, additional emotional and practical considerations come into play.
There are many things to keep in mind when figuring out who will keep the house or whether it will be sold, including: where the children will live, whether either spouse can afford to keep the house after the divorce, tax implications, and reimbursements.
This article provides an overview of some of these considerations. Because of the complexity of the issues that can arise when dividing a house in a divorce, you should always consult with an attorney for advice about what is best in your situation.
The first step in figuring out who will keep the home or whether it will be sold to a third party is to determine who owns it. While this may sound simple, in reality it is not always clear.
In California, there is a presumption that property acquired during the marriage is "community property," which means the property is owned by both spouses equally (unless one spouse acquired it through an inheritance or gift).
In the most straightforward case, the spouses bought the home together during marriage (using only community property funds) and are both on the title. In this case, the home is community property, and both spouses share an equal interest.
Sometimes, however, facts regarding the ownership of a home are not that simple. For example, in some cases, the title to a home purchased during marriage is in the name of one spouse only. In this situation, the title creates a presumption that the house is separate property and belongs to the spouse whose name is on title.
The other spouse can overcome this presumption by showing that the spouses had an agreement or understanding that the house belonged to both of them, even though they were not both on title. Rebutting the presumption created by title can be very difficult, however, and requires strong evidence that the intent was for the house to belong to both spouses.
When a spouse buys a home before the marriage, that home is generally that spouse’s separate property. However, the situation becomes more complicated when the spouse who is not on title contributes money to the mortgage or payments for improvements to the home during the marriage. In this case, that spouse would have an interest in the home, which can be significant, especially with a long marriage.
If the house is separate property, the owner-spouse will get the house. If the house is community property, there are several ways it can be divided, either by agreement or court order, in the divorce judgment.
Spouses can agree to sell their home and split the profits from the sale. This is often the only feasible option when neither spouse is in a financial position to own the home alone.
(For more on this option, see Selling the House When You Divorce).
Another option is for one spouse to take full ownership of the home and pay the other spouse his or her share. The buying spouse will need to refinance the home, so that the selling spouse is removed from the mortgage.
In determining whether the buying spouse can afford to take on full ownership of the home, many costs need to be considered, including:
Tax implications are also an important part of the financial equation. You need to determine whether the buying spouse would be entitled to a mortgage interest tax deduction.
For more information regarding eligibility for a mortgage interest deduction, see IRS publication 936.
In addition, sometimes the court will order, or spouses’ will agree, to include a provision that the selling spouse pay the mortgage as a form of spousal support. If so, the spouse paying the mortgage can claim a tax deduction for spousal support payments. The spouse keeping the home would need to claim those payments as spousal support income, but still may be eligible to claim a mortgage interest tax deduction.
You should contact a tax consultant for more precise information on these tax issues.
(Find more information on Negotiating a House Buyout at Divorce).
When the spouses have minor children in common, the court may make an order that temporarily delays sale of the home. This is called a “deferred sale of home” order. Under this scenario, both spouses continue to own the home jointly for a set period, giving the custodial parent exclusive use and possession of the home during this time. The purpose of a deferred sale order is to minimize the impact of the divorce on the children.
In considering a deferred sale order, the court first must determine whether the spouses will be able to afford the payments on the house after the divorce. The court will look at the spouses’ incomes, the availability of support, and other funds available to make payments.
If the court finds that a deferred sale is financially feasible, the court must then decide whether a deferred sale is necessary to minimize the impact of the divorce on the children. The court will consider all of the following factors:
An order for a deferred sale will specify how long the order is in place, after which time the spouses will sell the home.
Whatever the disposition of the home will be, when determining each spouse’s interest in the home, the court will consider whether either spouse is entitled to reimbursement from the other. A spouse may be entitled to reimbursement in the following situations:
As discussed above, when a spouse purchases a home before marriage, it is separate property. But, if community funds are used to make mortgage payments or improve the separate property home during the marriage, the other spouse acquires an interest in the home. During the divorce, the court will use a formula to calculate that spouse’s interest in the home, and the spouse will be reimbursed for those contributions.
Under California law, the court can order that a spouse be reimbursed when he or she uses separate property funds to pay the mortgage on a community home after the date of separation and before the divorce, unless it would be unfair and unreasonable for that spouse to expect reimbursement.
For example, the court will not order reimbursement if the spouses agree there will be no reimbursement, the payments were intended as a gift, the spouse making the payments continued to live in the home and the payments were not substantially greater than the rental value of the home, or the payments were made in lieu of or as a form of spousal support.
A spouse who has exclusive use and possession of the family home between separation and divorce may be charged with the fair rental value of the home for that time period, owing half of that value to the other spouse when the property is divided.
For more information on Epstein credits and Watts charges, see Dividing the Debts in a California Divorce, by Melissa Tapply.
You can find much more information in our section on Divorce and the Family Home.
The California statutes regarding division of the house in a divorce are found in the California Family Code, sections 2550, 2580, 2581, and 3800-3810.
Published court cases addressing these issues include:
In re Marriage of Brooks and Robinson (2008) 169 Cal.App.4th 176
In re Marriage of Epstein (1979) 24 Cal.3d 76
In re Marriage of Marsden (1982) 130 Cal.App.3d 426
In re Marriage of Moore (1980) 28 Cal.3d 366
In re Marriage of Watts (1985) 171 Cal.App.3d 366