If you own a home and live in California, chances are that all or most of it will be considered community property. That is true whether or not both parties are on the title. There are a few exceptions to this, and you should talk to a divorce attorney about your specific situation.
Assuming your home is community property, you will have to divide it in your divorce. This can be harder than many people think, if only because your emotions are involved. Retaining the family home can mean continuity for the children, but it’s not always practical.
Here are four options for how you might divide your home in a divorce:
Sell the home outright
This is a relatively straightforward way of dividing the asset. It may make the most sense if the market is favorable. Selling makes the division process pretty painless because you don’t need an appraisal to determine its fair market value. You can just split the proceeds. It can also provide a clean break, with each parent starting fresh in a new home.
You should be aware that there could be tax implications You could owe capital gains taxes if you haven’t owned the home for at least two years and you don’t immediately buy a new residence with the proceeds.
One party buys out the other party
If they have the cash (after property division), one party may agree to buy out the other party’s interest in the home. This is generally done to allow one party to maintain the family home and provide continuity for the kids.
The general process is to get one or more appraisals to determine the fair market value of the home. Then, assuming the home is 100% community property, one party would pay the other party half of that value. The party who remains in the home will generally need to refinance in order to take the other party off the mortgage.
This may be a good option for people who like their current home, or when the market isn’t favorable. It’s also important to find out what your new mortgage payment will look like before you agree to a buyout.
Own the home with your ex
If you are comfortable remaining in a business partnership with your divorcing spouse, continuing to own the home together may be a decent option. This is another option that could allow the kids the continuity of continuing to live in the family home. However, you could also retain the house and rent it to third parties.
This option may be more practical for those who can’t afford a buyout. In a down market, it can allow you to wait until a more favorable market before selling.
Keep in mind that late payments and foreclosure will affect both of your credit scores if you continue owning the home together. It’s crucial to agree on who will pay what bills and when. Also, agree on a dispute resolution mechanism in case the bill goes unpaid. Also, ask about capital gains implications for the party who doesn’t live in the shared home.
Trade the home for another large asset
If you are negotiating your divorce settlement, you can agree that two large assets are equally valuable. Or, you can obtain appraisals on the value of each asset and make trade-offs. For example, one spouse might get the family home while the other spouse gets the stock portfolio or a vacation home. This again could allow one spouse to continue living in the home.
However you determine the value of your larger assets, it may make sense to trade one for another and not worry about the exact details.
Ultimately, your divorce negotiations can lead to any result you can both agree on, as long as that result comports with California law. If you can think of another way to divide the family home that you and your divorcing spouse can agree to, that could very well be allowed. Talk to a divorce attorney about your goals and options.