No matter which side of the issue you are on, the question is a source of stress and uncertainty. For the spouse who wants to keep the house during a divorce, it is a sanctuary. For the spouse who wants to sell the house during a divorce, it is a source of financial stress. Fortunately, there are answers to these questions and the process is more straightforward than you may think especially if you have hired a skilled and experienced family law attorney by your side.
This article will help you understand some of the more common options available to husbands or wives who want to keep or sell their house during divorce. But it goes beyond that too and deals with some more unique situations. We think you will really enjoy it. This article is not legal advice. It's not designed to talk about your specific situation. The general information we provide here is for those who anticipate going through a divorce in or are already in the middle of one.
Now, let's get to these important issues. We will start with a preliminary question that are commonly asked.
Does moving out of the house impact whether I keep or sell the home?
From a legal perspective, a spouse with a community property interest in the home doesn't lose that interest just because he or she moves out. From a practical perspective, one spouse moving out can cause a lot of concerns and at the forefront of them is this question - who will make the mortgage payment? For the homemaker who wants to stay in the house, this is a scary proposition because, absent payment of support, how will the payment be made? And that's just the mortgage payment. There is also property taxes, insurance, etc. For the higher earning spouse, the stress is similar. It's one thing to pay for a house in which the family lives. It's another to pay for two households who live apart.
The solution is setting expectations on these issues ahead of time and having clear agreements on those expectations. We will discuss that more below.
How can I sell my house during a divorce?
Selling the house during divorce is more complicated because of the Standard Family Law Restraining Orders that go into effect as soon as the divorce petition is filed and, as to the respondent, when served. As it relates to a family residence, these restraining orders generally prohibit a sale absent a written agreement or a court order.
The stipulation and order to sell the house during a divorce
Stipulation means agreement. Therefore, a stipulation and order is an agreement that becomes a court order. Possibly the easiest way to sell the house during a divorce is through a written and signed agreement between the spouses that then becomes a court order. Effective legal representation is important. Speak to your family law attorney about the terms that fit your needs. Some of those may be the following:
Will the selection of the real estate professional be a mutual one? Will one spouse provide the other with a list to choose from or will there be another way to choose one?
How will the price be set? Will it be up to the real estate professional subject to approval of the spouses?
How will the price be reduced, if necessary?
Will one spouse be the lead in all communications with the real estate professional or will every discussion and decision have to go through both spouses?
Will both spouses need to formally approve all offers, counter offers and acceptances?
Which spouse will ensure the home is ready for showing to prospective buyers?
Will the home be shown even if neither spouse is present?
Is there an agreed dollar amount that, if offered, will result in an acceptance of an offer or will the spouses always the ability to negotiate any price?
Are there liens or encumbrances other than the mortgage that need to be paid from the sale proceeds? Are they undisputed as community or separation property and, therefore, from whose share they will be paid?
What will happen to the sale proceeds? Will it be distributed to the parties, in whole or in part? Will it be characterized in the stipulation and order as community property, separate property or will that characterization be reserved for the court to determine later?
Are there reimbursement claims by either spouse, such as one resulting from a separate property down payment that can lead to future claims?
These are some of the provisions to consider.
On the issue of characterization, there is a common misconception that just because there is a dispute about the community versus separate property nature of the residence, the house cannot be sold. Sometimes, that is true but it doesn't have to be like that in every case.
The court order without an agreement to sell the house during a divorce
Agreements are great but sometimes, there is none to be had. What then? Can the house still be sold during the divorce? The short answer is yes.
Asking the court for an order to sell the house before the divorce trial
You don't have to wait until the end of the divorce to have the house sold. But if you want it sold before the trial, there needs to be a very good reason. Here are two common ones we see. These are not the only basis for selling the home before the divorce trial.
Selling the house during divorce because of the threat of foreclosure: Whether only one spouse lives at the house or both spouses do, failing to make the mortgage payment can result in foreclosure proceedings. Sometimes, failure to make the property tax payment can have a similar consequence. If the home is in danger of foreclosure, especially in those situations where there is equity in the home and a foreclosure may cause the likely loss of that equity, a spouse can file a request for order with the court and ask the court to order the home sold immediately. Hopefully, one or both of the spouses will move diligently on this issue as a foreclosure is rarely in either spouse's best interest.
Selling the house during divorce to pay for attorney fees and costs: Some divorces have hotly contested issues, such as child custody, support or even property disputes. For example, if the spouses have significant child custody disputes due to serious allegations of abuse (or false allegations of abuse), the fees and costs may be significant. If neither spouse has the ability to pay for those fees and litigation on custody is inevitable, it is not unusual for an attorney fee request to be filed and the court be asked to liquidate an asset to pay for such fees. A house is only an asset. The family court does not attach any emotion to it.
Asking the court for an order to sell the house at the divorce trial
The more common scenario, assuming there is no imminent need to sell the house during the divorce and before trial, is to order its sale at the conclusion of the case. There are plenty of reasons this issue may go to trial including a situation where neither spouse has the ability to buy the other spouse out or neither spouse wants to do so. There are also situations where one spouse has been so unreasonable in their position (or refusal to settle) that an agreement could not be reached on how to resolve the house issue.
What if the house is a rental property? Can it still be sold during a divorce?
Yes. Income producing property can also be ordered sold during the divorce.
Tax consequences to selling the house during a divorce?
Of course, there is always Uncle Sam. Selling a home can have tax consequences, including but not limited to capital gains taxes and even taxes related to any depreciation that may have been taken as to rental property. Please consult with your tax professional for advice.
The buy out process to keep the house during a divorce
Buyouts are typically by agreement (stipulation and order). It is possible the Court could order a buyout although that is not as common.
Things to watch out for in the event of a buy out of a house during a divorce
The issues related to buyout of the house during divorce are similar to those related to its sale. Think of it this way - one spouse is selling the house to the other, except both spouses can skip the listing, marketing and showing of the property. Buyout of a house during divorce can occur in different ways. One common way is the spouses, though their lawyers, agreeing to use an appraiser everyone trusts. Once the appraisal comes back (assuming both parties agree to the price), that sets the fair market value of the house. From there, the mortgage and other encumbrances are deducted to determine the equity value. Assuming the spouses and lawyers agree on the community versus separate property issues, they will typically work together to come up with a buyout number.
For example, if a house is worth $1 million dollars and it has $500,000 owed on it, there will be $500,000 equity. Let's further assume the house is community property and that is not in dispute. The spouses can then stipulate to a $250,000.00 buyout.
A buyout doesn't have to involve cash payment. A buyout of a house during divorce can include an offset of other assets in exchange for the buyout or even an offset toward compromises reached on other issues (spousal support, attorney fees, etc.) How two spouses and their lawyers create the buyout payment or offset depends on the facts of the particular case.
Buyouts do require diligence. Here are a few examples of things to consider:
How will the buyout occur? Refinance? Loan modification? Offset? Personal loan?
When will the buyout amount be paid?
If both spouses are on title, is the one being bought out also being removed from title at the same time of payment? How will that exchange occur?
If both spouses are on the mortgage loan, is there is a timeline by which the spouse being bought out must be removed as an obligor? What happens if that deadline is missed? Is the house sold? What are those terms?
Does the mortgage company (bank) have any restrictions on refinancing, modifications, change of title, etc.?
What if there is no equity in the house?
When the house has equity, the buyout process and that equity go hand in hand. But what happens when the house does not have equity? How is a house sold or bought out during divorce when there is no positive value?
No equity homes sometimes present a greater challenge than those with equity. The lack of equity can lead to attachment of sentimental or emotional value or its use as leverage. For example, if the husband wants to sell the house but the wife wants to stay, the husband may insist on the house being sold unless he gets something else in return, even though the husband knows nothing will come out of the sale. You can probably figure out there are several scenarios where situations like this can be used (for better or for worse) in negotiations.
While there is no specific "fix" for this situation, sometimes a bidding war can start over a home in this situation. Essentially, whoever wants the house agrees to pay more for it or offsets it with another asset. While this isn't the only solution, absent common sense kicking in, in our experience it is a common one.