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.