Family Law Related Services

Family Law Related Services

Selling or Keeping the Family Home during Divorce?

California is a Community Property state meaning that during divorce, all community property, which is anything acquired during the marriage, is divided equally between the spouses.  This includes all income, earnings, assets and investments acquired during the marriage but does not include gifts or bequests.  In many marriages, the family home is community property and subject to division between the spouses.
Deciding whether or not to sell the family home during divorce can be a complex issue for divorcing couples.  Because of the significant financial consequences to both spouses, issues such as who has the right to retain ownership, who has the right to retain possession, and who has the right to make selling decisions if the home is to be sold often arise.  One or both of the spouses may still be living in the family home and there may be a myriad of personal and economic intricacies affecting decisions about what to do with the home.
There are numerous financial considerations to make including the current state of the real estate market.  Changes in market conditions, mortgage terms, equity positions and tax liabilities may all complicated the situation making it even more important to work with a real estate professional versed in family law.   There are also emotional considerations to make based on the sentimental value that is attached to the home both for the spouses and also potentially for their children.  Acknowledging these emotional hurdles is helpful to the process by keeping open communication and understanding between the divorcing parties who both will benefit by working out their differences.
Unlike most situations outside of divorce, the parties in a divorce who co-own the house have divergent interests and may have different goals regarding their real estate.  In all divorce cases in California, automatic temporary restraining orders are issued at the beginning of a case which prohibit either spouse from selling any real property without a written agreement or Court Order.  It is important that your Realtor be familiar with these family law processes to be able to assist you in navigating the legal hurdles necessary to sell community property.
All within the confines of your divorce case, your family law experienced realtor will be able to assess your property’s value, get your home listed on the MLS, market and stage your home for potential buyers and navigate negotiations with potential buyers.  When you enter into a purchase agreement, your family law realtor will continue to navigate you through escrow in compliance with all the requirements of your family law case.
In some cases, the family home can be retained by one of the spouses notwithstanding the need to divide the community assets equally.  This can be accomplished where there are other community assets to be awarded the other spouse to offset the community equity and to ensure that both spouses receive an equal share of the community property.  In such a situation, one spouse “buys out” the other spouse by paying the other spouse for their share of the community equity.  This can be accomplished by giving the spouse their share of other community assets or simply by a payment from the purchasing spouse with their own separate money.
In any divorce case, it is always best to have an experienced attorney to guide you through the process.  If your divorce also involves real estate, a realtor with expertise in family law will be able to help you through the sales processes that are required for divorcing spouses in Court.  Only by having professionals with the experience that matters will you be able to navigate these pivotal issues with confidence and clarity.

When One Spouse Signs the Marital Home Over

In many marriages and for many different reasons, one spouse may execute a quit claim deed on the family home in favor of the other so that only the one spouse is on title. This could be done for financing reasons, tax reasons, liability reasons, or also simply to recognize that the family home is the separate property of the other spouse. But when the spouses reach divorce court, the question arises whether or not the quit claim deed was a valid transmutation such that the one spouse has lost their community interest in the house which is now the separate property of the other spouse who is on title. “Transmutation” is the family law term when community property becomes separate or when separate property becomes community property. Even though there is usually a presumption of title that the title holders are the owners, this presumption does not apply in divorce court where the court will determine whether or not a community interest exists.

It is helpful at this time to refresh our understanding of what community property is. Community property is any asset or any debt incurred during the course of the marriage excepting gifts and inheritances received by one spouse. So if a spouse brought something into the marriage, it is their separate property and if something was acquired during the marriage it is community property. This article analyzes what happens with a community property house when one of the spouses has signed a quit claim deed removing them from title and whether or not a valid “transmutation” has occurred changing the community property house to the separate property of one spouse. There are a couple of Family Code laws that make it quite difficult for there to be a valid transmutation in most situations. They are Family Code Section 721 which imposes fiduciary duties on each spouse as to the other and Family Code Section 852 which imposes the requirements of what is required for a valid and enforceable transmutation of community property. Because of the duties spouses owe to each other, whenever an alleged transmutation results in one spouse obtaining an advantage at the expense of the economic interests of the other spouse, a presumption of undue influence arises against the advantaged spouse. In such a situation, the advantaged spouse must overcome the presumption by “clear and convincing” evidence that the transmutation was not the product of undue influence.

Section 852 requires transmutations to be supported and established by some kind of written express declaration that is joined in, consented to or accepted by the spouse whose prior interest was adversely affected. In order for there not to be undue influence, the declaration must show the spouse understands that they have a property right and that they are giving up that property right. Even where that language exists or is added to a quit claim deed, the transmutation is still not automatically valid just because they have satisfied Family Code Section 852 with a proper writing because of the fiduciary duties owed pursuant to Family Code Section 721.

In fulfilling their fiduciary duties owed to one another, spouses cannot take advantage of one another in property dealings and must regard each other’s interests no less than their own. Fiduciary duties impose the highest duty of good faith and fair dealing between spouses and this duty continues on into divorce court and until the parties become unmarried by a final Judgment of dissolution. When an asset is transferred between spouses during marriage without consideration (i.e. for no compensation for its value), the transmutation is presumed invalid and to be the product of undue influence. It is the burden of the party claiming the transmutation is valid to rebut that presumption by clear and convincing evidence showing otherwise.

It can be an uphill battle for a spouse trying to assert a valid transmutation. The advantaged spouse must show that the transfer was made freely and voluntarily, was made with full knowledge of all of the facts, and was made with a complete understanding of the effect of the transfer. The spouse holding title must present evidence regarding the intentions and understandings of the parties so as to support the existence of a valid transmutation.


What Is Community Property?

In California, a divorcing couple’s community property must be split equally between them.  This is usually accomplished by a settlement agreement or by a Judge after trial.  However, before the Community Property can be divided up, it must be determined what is Community Property and what is not.  California Family Code Section 760 provides that “all property, real or personal, wherever situated, acquired by a married person during the marriage  . . .  is community property.”  This means that any asset or any debt that either spouse acquired during the time they were married is Community Property which then must be divided upon divorce.  Statutory exceptions are made to this rule for any inheritances or any gifts received by one spouse during the marriage.  If one spouse inherited property or received gifts intended for them as their separate property, then the presumption of Community Property does not apply and the inheritance or gift would remain the separate property of the spouse that received it. 
It is possible however for spouses to change Community Property into Separate Property or vice-versa.  This is called a “transmutation”.  Transmutations are governed by Family Code Section 852 which imposes requirements of what is required for a valid and enforceable transmutation of community property. Because of the duties spouses owe to each other, whenever an alleged transmutation results in one spouse obtaining an advantage at the expense of the economic interests of the other spouse, a presumption of undue influence arises against the advantaged spouse..  In such a situation, the advantaged spouse must overcome the presumption by “clear and convincing” evidence that the transmutation was not the product of undue influence. Section 852 requires transmutations to be supported and established by some kind of written express declaration that  is joined in, consented to or accepted by the spouse whose prior interest was adversely affected.  In order for there not to be undue influence, the declaration must show the spouse understands that they have a property right and that they are giving up that property right.  
So because of the presumption of community property, if a house is acquired during a marriage, it will be Community Property.  This presumption could only be rebutted by written proof such as a clear statement that the otherwise community property was intended by the spouses to be separate property belonging to only one of them as required by Section 852.  Even where there is such a writing that satisfies this section, an inter-spousal transfer still might not cause an effective or enforceable transmutation if it was made in violation of the fiduciary duties that spouses owe each other.
In some situations, a party comes into a marriage owning a house or with some other assets which they then  use to buy a house during their marriage.  IN such a situation where one spouses contributes their own separate property to the acquisition of Community Property, under Family Code Section 2640 that spouse is entitled to get their separate property contribution back upon divorce and before dividing up the community interest between the spouses.  In other situations where a house remains the separate property of one of the spouses during the marriage, community resources (which includes both spouse’s income during the marriage) may contribute towards mortgage payments or other expenses related to the house.  In such a case, the Community will acquire an interest in the separate property of the one spouse in proportion to its contribution towards the purchase or paydown of the loan.  This is known as a Moore Marsden interest and it is extremely advisable to have a family law attorney who can discern the separate interests from the community interests in the family home when this situation arises.

What Happens to the House in Divorce?

By the end of most divorce cases in California, the spouses will no longer own real property together.  This can be accomplished through a buy-out whereby one of the spouses buys out the other’s interest, or it can be accomplished by selling the community home to a third party. In the latter case, the spouses may agree to an immediate sale of their home or a deferred sale might be more appropriate or Ordered by the Court following a trial. Because the co-owners of the property are divorcing and because their property is subject to the jurisdiction of the family law court, neither spouse or co-owner is able to sell the house without the other’s written consent or without a Court Order.  
If a situation arises where one party wants to sell the community house and the other does not, it is not possible to proceed with the sale of the property without a written agreement signed by both parties or without a Court Order for the sale of the property.  However, the Court will not make an Order to sell the house prior to trial unless the party requesting the Order can demonstrate that the Order is necessary prior to trial in order to preserve the community equity.  For example, a pre-trial Order for the sale of the family home might be made by a Court in order to prevent a foreclosure sale and the ensuing loss of community equity.  
By agreement between the spouses, they may agree to an immediate sale of their house. In many situations where there are not sufficient assets to award the house to one spouse, selling to a third party is the only feasible option.  When the parties agree to sell the house to a third party during the pendency of their divorce, they can then use their share of the proceeds as they wish.  If there are outstanding and unresolved financial issues between the spouses, they may agree to hold some of their community equity back in a trust account to resolve those issues in the future, whether by agreement or trial.   Sometimes the parties may agree to defer the sale of the house to accommodate their children or other interests. If the parties do not agree, a Judge may nonetheless make such an Order after considering the impact of the sale on the children and how each party is financially affected.
If one of the spouses, after their date of separation, used their own separate funds for mortgage payments or improvements is entitled to reimbursements. However, a spouse that is exclusively occupying the marital home may also be held financially accountable to the community for the reasonable rental value of the property.  Having a family law experienced realtor and an experienced family law attorney on your side is critical to understanding your rights and making the right decisions for you.

The Value of Your House in Divorce Court

In a situation where spouses divorcing one another have agreed that one spouse will buy-out the other spouse, how do you determine the value of the interest being bought out?  Specifically, the amount of equity that each spouse has is determined by the value that is assigned to the house at the time of division.  According to California law, the value of property to be divided between the spouses is to be determined as close as is practicable to the time of trial.
Spouses can enter into a stipulated agreement or stipulated judgment for the buy-out by one spouse at any value or under any methodology that the parties agree to.  This can include using the sales of comparable properties or more comprehensive analysis provided by a professional realtor.  The parties can also agree on a mutually agreeable real estate agent or appraiser to make determinations of value.  
If the parties cannot agree and ask the Judge to make the determination regarding the value of the home, each spouse will be able to put on evidence at the time of trial of the fair market value of the house at the time of trial.  Only in extreme and rare circumstances, such as where one spouse had exclusive possession of the house after separation and devalued the house, would the Court consider valuing the house at the time of separation instead of the time of trial. The evidence each spouse presents can include the testimony of an expert such as a real estate appraiser or real estate agent or broker.  The parties may also present documentary evidence such as sales reports for similar properties generated by the MLS though such reports do not make the detailed considerations that an appraiser might make.  When a Judge has to choose between competing expert opinions, the Judge can pick only one and cannot split the difference.  Unless it appears to the Court that the party being awarded the house will need to sell the house in the immediate future, the Court will not usually subtract estimated sales commissions, closing costs and transfer taxes from the equity in determining the value to be divided by the spouses. 
Once a value of the house is determined, then the buy-out amount for one spouse to buy-out the other is determined to be one half of the value.  However, if one of the spouses had made a separate property contribution to the purchase of the community house, then that sum would be awarded off the top to the spouse that made the contribution with the remaining equity being divided equally by the spouses.

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