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Protecting your finances is one of the top priorities in a divorce. For many Californians, the most significant part of that goal is making sure that your interests are protected when it comes to selling your house.
This is what you need to know and the steps you need to take to make sure you are treated fairly before, during, and after this critical transaction.
What is the first step in selling the house during a divorce?
Before you can take part in selling your home as part of a divorce in California, you’ve got to make sure that you own the house in the first place.
Sounds simple. But that isn’t always the case.
California courts operate under the presumption that property, including homes, acquired during the marriage are community property. The exception is if the house was clearly acquired and given to one spouse only through an inheritance or a gift.
This means both spouses own equal shares of the home. Both are entitled to 50% of the net proceeds of the sale of the house. California differs from most other states that work under the presumption of equitable distribution. Using this premise, assets such as homes are divided fairly and equitably, but not always equally (50/50) in a divorce.
Consider yourself lucky to be a resident of California, where community property laws simplify the process most of the time. This is the case when a home was purchased after you got married and both spouses are on the title, making you equal partners in the appreciation and the debts associated with the abode.
However, there are also cases where a house was purchased by one party before getting married, and only one spouse’s name is on the title. It creates the presumption that the house is separate property belonging to one spouse and not the other.
This is where things can get complicated.
Although only one person legally has title to the house, if the other spouse contributed earnings to pay the mortgage or other expenses during the marriage, or can show that the home was intended to belong to both spouses, the argument can be made that both spouses have an interest in the house. That argument can be especially strong in long marriages.
Refuting the presumption created by title can be very difficult. It requires strong evidence that the intent was for the house to belong to both spouses.
To counter this claim, the spouse whose name is on the title can execute a pre-nuptial or post-nuptial agreement with the other spouse. It should indicate they are the sole owner of the house, no matter what other circumstances may arise.
If community property ownership is not a contested issue, then you will need to decide if you want to sell the house outright, or if one spouse wants to buy out the other spouse’s interest. Both are conventional approaches with decidedly different methodologies.
Regardless of what is decided, you will want to hire a realtor to do the actual “heavy lifting” associated with completing the process.
How do we pick an agent when selling the house in a divorce?
You probably don’t want your husband’s Uncle or your wife’s sister acting as the realtor for this transaction.
They may be fine people, but you must not have even a whiff of a lack of impartiality when you sell a home in a divorce.
It’s critical to retain a trusted professional after you talk with several potential candidates. There are several resources you can turn to for assistance.
If you have a family attorney, they are often good places to start for a referral to a reputable realtor.
In cases where you had a good experience buying your house, consider using the realtor who worked that transaction. This can be a good move as long as both sides approve, and the agent does not appear to be closer to one spouse than the other.
There are also several traditional ways you can find a qualified realtor.
Take note of which realtors farm your neighborhood. They’ll be the most in tune with comps, recent sales, activity, market trends, and so forth.
Also, ask friends and relatives for referrals.
Depending on the amount of animosity between you and your spouse, both of you can interview agents together, or you can work independently. Each of you will come up with a shortlist before reaching a final decision.
Are there specialists in divorce real estate?
Absolutely!
The sale of a home in a divorce is a large and complicated transaction. Family law attorneys are considered one kind of specialist in divorce real estate, often carrying out negotiations related to how the property will be divided.
Each spouse is entitled to 50% in California unless there are special circumstances. But it is common for one spouse or the other to trade off some or all of that value in consideration of other assets. This might be equity in a pension, jewelry, or high priced art, cars, or other items that will cancel out their share of homeownership.
Attorneys may need to call in other experts to help figure out the value of the house, tax implications, and other critical details.
Some realtors focus on divorce real estate and will understand these issues and how they might best be negotiated. Due to their experience, they will also be better equipped to handle highly emotional aspects of a divorce sale, working toward a compromise to help get the deal done.
Other knowledgeable specialists often utilized are divorce mortgage advisors and certified divorce financial analysts.
Mortgage brokers work for spouses to help them figure out ways to refinance a family home with sole ownership. They also show how to fully remove a spouse’s name from the loan and title deed, and the implications of other financial aspects of the divorce on a home buyout.
Realtors and divorce mortgage specialists can often apply added insights and creative solutions to problems that will protect both sides in a divorce home sale. They will help position borrowers in the best light possible, giving the best chance for a quick review and approval.
One way to determine a realtor’s level of commitment is to ascertain if they have specialized formal training in dealing with divorce real estate transactions.
Soft skills such as conflict resolution, excellent communication skills, and a lot of patience are essential. However, sometimes hiring a specialist with a formal commitment to this niche makes a lot of sense.
For example, training with the Institute of Divorce Financial Analysts earns the designation of Certified Divorce Financial Analyst (CDFA). Professionals with this training typically have a background in accounting, finance, or matrimonial law, rather than real estate.
Agents who study the master course devised by the Divorce Real Estate Institute earn the title of Certified Divorce Real Estate Expert (CDRE). This certification focuses specifically on the real estate market and training active real estate agents. Agents train in the legal, regulatory, and tax aspects of the real estate divorce process.
Only about 1% of realtors receive specialized training in divorce. This is surprising since close to 50% of the population may eventually get divorced and a house is usually at the center of the largest and most emotional decisions that are made.
These designations might be something to look for when deciding who to retain for your real estate transaction.
How do we decide on the value of the house?
There are several methods for determining the value of the house.
Determining the real value is especially critical if one spouse is buying out the other spouse’s interest, or if negotiations mean that one spouse is willing to give up a more significant share of the house’s value in exchange for other considerations.
Finding the right value is one of the most important reasons for retaining the best agent. Agents will have appraisers in their network who can tell you what the house is worth. Keep in mind that you are always free to use any appraiser you want. If you strongly disagree with an original appraiser’s valuation, you can confirm or dispute the initial results.
When both spouses are selling their interests in a home, determining the value of the home is still crucial for listing purposes. However, what the house ultimately sells for is what the actual value of the home is.
Several methods can be used to determine a home’s value. Each has a different level of accuracy and thoroughness to consider.
The best way to go is by hiring a professional appraiser. Although buyers are required to have a home appraised before a lender will approve a loan, sellers are not under that kind of restriction.
An appraiser will be the most thorough and accurate in determining a value. They will look at the local market, comparable property price sales, the individual characteristics of the house (good and bad), schools, crime rates, shopping, transportation, and other aspects to determine a value. The only drawback is that an appraiser may cost a fair amount of money that spouses may not be willing to spend.
A popular to determine value is to look at comparable sale prices of comparable properties. Known as “comps,” they can provide a pretty good look at what’s going on in your neighborhood. Going this route does not always take into all the nuances required to come up with the most accurate value.
A comparative market analysis (CMA) is not as detailed as an appraisal but does provide more information than just looking at comps. It is more commonly used for listing purposes than all other methods. An agent may do a CMA at little or no cost but will do so with the expectation that you are going to hire them as your agent.
Some people use online valuation tools, such as through Zillow or Redfin. These services access limited public data and tend to make sweeping generalizations that can negatively impact the accuracy of a valuation.
How to determine a listing price for the house?
With appraisals or similar valuation in hand, you need to decide on a couple of variables.
How quickly do you want the house to sell?
If you’re in the midst of an ugly divorce, your answer is probably ASAP. However, if every dollar is critical for your post-divorce life, you may want to be patient and list the house higher to see if you can get a maximum price.
If comps come back in a market that is trending up, then you may want to consider adding a certain percentage over and above those blended comp amounts. If the economy is starting to tank, then the opposite may apply.
Inventory is also a factor. If there aren’t many houses on the market, or there is a lot of demand, which is almost always the case in California, then be aggressive in your pricing. If your goal is to create a bidding war, then start a little lower and watch the offers roll in.
Keep in mind that it is always easier to drop the price of a home than to increase it after you’ve put a house on the market.
How well you stage your house, or how well you have kept it up inside and out can also help determine if you should tack on a premium to the price. Move-in ready homes sell quicker and for a higher price when all other factors are considered.
Finally, think like a buyer. Leave room for some negotiation. Don’t overreach, but also don’t panic and cave into a lowball offer either.
Can we list the house before the divorce is final?
You can list a house for sale at any time during a California divorce.
Listing and selling early in a divorce may be advantageous because it will be one less source of friction if you can finalize the deal.
Once you list the property and it sells, then you’ll be able to divide the proceeds no matter where you are in the divorce process. If you need money to buy another property or to pay for divorce expenses, the cash will be a welcome addition to your bottom line.
Treat the listing and sale of the house separately, if possible. This is easier to do if you both have an equal 50/50 share and you want to keep things simple.
Just make sure you know what to do with the funds before you enter into an active selling process.
As an alternative, you can put the net proceeds in a separate account until you can resolve how to divide them. The choice is whatever arrangement you and spouse can come to after closing the sale.
One of the main reasons you may want to list the house early on is if there is the threat of foreclosure. In a marriage, one spouse may no longer decide to help make mortgage payments, and that can quickly put the remaining spouse in a financial hole.
Failing to make mortgage payments can trigger a bank to start foreclosure proceedings. This is the last thing you need on top of a divorce. But it happens, quite frequently as a matter of fact.
Does it matter if we sell the house before or after divorce?
It depends on your particular situation. Sometimes the answer is “yes,” and at other times, “no.”
Consider your current financial situation. Will you need cash from the sale of the home to live on during and after a divorce? Are there going to be tax implications depending on when you sell? Is the market going to be better or worse, now or later?
If you plan on buying another home post-divorce, you’ll probably need those funds from the sale of the home. It might be better to complete the transaction as soon as possible, so you know exactly how much you have to work with.
The other benefit of selling before a divorce is final is that it makes it easier for each spouse to cut the emotional ties of the relationship. Houses that have been the center of family activities for many years can be painful to let go of. But in the long run, cutting ties quickly instead of holding on may prove to be a better solution.
On the downside, trying to sell a house during a divorce adds an entirely new level of stress to an already complicated situation. It’s time-consuming. It can be costly if repairs and staging costs are part of the deal.
Keeping the house clean and showing it can cause added disruptions, especially if children are involved. Be prepared for a higher level of emotional chaos.
If you and your spouse disagree about when to sell, that lack of cooperation can also get ugly. Decisions are often made based on anger or revenge, and that means common sense can be in short supply at a time when it is needed the most.
It’s not just the sale of the home that needs to take place. During the selling process, you’ll also need to divide the contents of the house too. Thousands of small decisions and arguments can take their toll in a big way.
In a hot California market, waiting to sell means that additional equity can build up in a home. That makes good financial sense and also gives emotions a chance to subside so that rational thinking can kick in.
Who gets to live in the house while it’s listed for sale?
This is another “it depends” situation.
In some cases, both of you may continue to live in the home. But if you’re at each other’s throats, one spouse moving out is the smart way to go.
One of the primary determining factors in who continues to live in a family home is determined by which spouse has primary custody of any children. Divorce is hard on children, and forcing more change is tough. Easing the transition by spreading out divorce trauma should be considered.
In some cases, both spouses want a fresh start, and neither wants to live in a place with bad marital memories attached to it. In these cases, the house can probably sit vacant until it sells.
Who needs to pay the mortgage while it is listed for sale?
If your name is listed as one of the owners of the house, you need to make sure the mortgage payments are made on time each month. You may not make the payments, but until the home is sold and your name is taken off the deed, missed payments can harm your finances.
Spouses may be required to make mortgage payments as part of temporary spousal support while a divorce is in progress. In theory, you may be off the hook, but missed payments will still hurt your credit score. It will be harder to get credit or a loan if your name is still on the deed, regardless of what the court has ruled.
After a divorce is final, a spouse may be ordered to make payments as part of the divorce decree. The decree is a legal and binding document, so if the responsible spouse does not make payments as required, they can be taken to court and sued for damages.
Can a judge force the sale of our home during a divorce?
Yes.
If one spouse is uncooperative, or if there is a threat that the house will be lost through foreclosure, you can request a judge to issue an order to start the sales process.
Another reason to compel a sale is if you need funds to survive on during and after the divorce. This could include paying for legal fees. Losing a job during a divorce may also be a legitimate reason as well.
Generally, you will need to present compelling evidence to the court to support one of these grounds before a judge compels the sale to move forward.
At other times, the sale of the house will be included as part of the final settlement. Under these terms, the transaction should move forward promptly. If it does not, you can ask the judge for assistance to force the uncooperative spouse to comply with the court’s orders.
If there are multiple offers, what if we don’t agree on which one to accept?
You’re probably dealing with a short time frame for the acceptance of an offer, so you’ll need to work quickly through your issues. The potential buyers will have their own set of things to put into action and won’t wait around forever.
With luck, you will decide to compromise. If not, your attorneys or team of advisors may step in a craft a negotiated deal.
When all else fails, you can have a judge step in and make a decision. As much as judges don’t like to do this, in cases where the house is at risk, they will decide to protect the equity in the asset–even though one or both sides may not like the outcome.
How do we divide the profit from the sale of the house in a divorce?
In a California divorce, all other things being equal, you are entitled to 50% of the net equity in a house sale.
If you are cooperative and want to horse trade the equity from the sale of the house, you and your spouse can work up some alternative compensation. For example, keeping a pension fully funded an intact may be more important than the equity derived from the sale of the house.
Putting together an agreement can be creative, according to what your goals are.
Will I have to pay taxes for selling the home during a divorce?
Seek guidance from a tax advisor or CDFA on this one.
However, married couples generally enjoy favorable tax breaks through the capital gains tax exemption.
When you sell the home as a married couple, you can exclude up to $500,000 of the home equity from capital gains taxes. Both of you may be able to avoid paying taxes on your share of the equity if you sell during the divorce.
Be aware that if you sell later, you may be stuck paying a hefty capital gains tax.
Also, you can only exclude home equity income from a capital gains tax if the house has been your primary residence for at least two years.
To avoid paying, make sure to include provisions for the sale of the home in your divorce decree to preserve the marital capital gains exclusion if you sell the house after the divorce is finalized.
The potential for trouble comes if you’re the spouse who stays in an expensive house, and you’ve negotiated to buy your spouse’s interest out by giving up other assets or refinancing.
If you negotiate sole ownership of the home during the divorce and sell after you’re single, you can only exclude up to $250,000 from the capital gains tax. This is instead of the $500,000 you could have claimed if you had stayed married.
When can I start to look for a new house after a divorce?
When you are ready.
Everybody heals and moves forward at a different speed. The circumstances and emotions associated with your divorce are unique. Pay attention to those feelings and don’t engage in a rebound purchase to artificially attempt to heal yourself.
You need to make sure you can handle the responsibilities associated with owning a new home on your own.
You need to take time to sort out your life, including where and how you want to live. Those kinds of things can’t be rushed, or you’ll heap regrets on yourself when you should be shedding negative emotions instead.
But, if you know what you want, or if you have children and you want them to settle into a new life as quickly as possible, buying soon after a divorce may work for you.
You need to blend your emotions with rational and financial elements to come up with the smartest move when buying a new house after a divorce.
How do I qualify for a new mortgage after a divorce?
Getting divorced can create some unique and specific issues when applying for a mortgage.
Your best bet is to work with a divorce mortgage specialist. He or she can walk you through qualifying on your own, looking at your current finances, and help you determine what is feasible for your situation.
Understand that you’ll need to temper your expectations, adjust to a new financial model, and resist the temptation to overextend yourself.
A divorce mortgage specialist will help remove the emotions and focus on the logic required to make such a sizable purchase a reality for you.
Does my ex-husband/ex-wife need to sign a quitclaim deed for a house?
By itself, a divorce decree does not transfer property to or from one spouse to another. It merely lays out the legal framework to be followed. You must take it upon yourself to go through the actual steps to complete the process.
All real estate is transferred by deed. At the time of the divorce, spouses should create and sign a new deed to divide their real estate as they have agreed to do.
The new deed is submitted to the city or county land records office for recording. You should also keep a copy of the deed to show you are the new and sole owner of the property.
When dividing property in a divorce, the goal is to take the ex-spouse off the title to the property deed. It is more of a release of the property than a conveyance. The spouse that will no longer own the property will quitclaim his or her interest to the other spouse.
To avoid future title issues, the ex-spouse that will no longer own the property should sign a quitclaim deed. This will convey the entire property to the spouse that will keep the property. Some people make the mistake of only conveying half of the interest, and this is a mistake that can cause trouble down the line.
Both spouses should sign the quitclaim deed, especially if the deed is signed before the divorce is finalized. With both spouses on the deed, it’s possible to avoid questions about homestead or community property rights.
It also assures third parties that no other consents are required for the transfer. The quitclaim deed should also be referenced in the divorce decree, which can help with the chain of title for future sale or loan.
Former spouses that don’t divide their property when they get divorced create problems that will surface later. Years pass and life goes on. Spouses assume the property has been divided. But when one of the spouses decides to sell or refinance the property, they can be in for a shock when they learn that their ex is still on the deed.