Selling or Keeping the Family Home during Divorce?
What Is Community Property?
However, it is possible for spouses to alter the character of property, changing it from community property to separate property or vice versa. This process is referred to as a “transmutation” and is governed by Family Code Section 852. Section 852 imposes specific requirements for a valid and enforceable transmutation of community property. Due to the fiduciary duties that spouses owe each other, if a transmutation results in one spouse gaining an advantage at the expense of the other spouse’s economic interests, a presumption of undue influence arises against the advantaged spouse. To overcome this presumption, the advantaged spouse must provide “clear and convincing” evidence that the transmutation was not the result of undue influence. Section 852 further mandates that transmutations must be supported and established through a written express declaration, which is joined in, consented to, or accepted by the spouse whose prior interest was adversely affected. This declaration must clearly demonstrate that the spouse understands their property rights and willingly relinquishes them, preventing any undue influence.
In light of the presumption of community property, if a house is acquired during the course of a marriage, it is generally considered community property. The only way to counter this presumption is with written proof, such as a clear statement expressing the spouses’ intention for the property to be separate, as required by Section 852. Even with such written proof, an inter-spousal transfer may not necessarily lead to an effective or enforceable transmutation if it violated the fiduciary duties spouses owe to each other.
In some cases, one spouse enters a marriage owning a house or other assets, which they may use to purchase a home during the marriage. When a spouse contributes their separate property to acquire community property, Family Code Section 2640 stipulates that the contributing spouse is entitled to recover their separate property contribution upon divorce, before the division of community property. In situations where one spouse’s separate property remains the family home during the marriage, community resources, including both spouses’ income during the marriage, may contribute to mortgage payments or other related expenses. In these cases, the community acquires an interest in the separate property of one spouse in proportion to its contribution to the purchase or loan paydown. This interest is known as a Moore Marsden interest, and it is advisable to consult a family law attorney to distinguish between separate and community interests in the family home in such situations.
What Occurs With The Family Home During Divorce?
Spouses may, through mutual consent, opt for an immediate sale of their house. In many cases where there aren’t enough assets to award the house to one spouse, selling it to a third party becomes the most viable choice. When the spouses agree to sell the property to a third party during the divorce process, they can then allocate the proceeds as they see fit. In instances where unresolved financial matters persist between the spouses, they might decide to set aside a portion of their community equity in a trust account to address these issues in the future, either through an agreement or trial. On occasions, the parties may postpone the sale of the house to accommodate their children or other interests. In the absence of an agreement, a Judge could still issue such an Order, considering the impact of the sale on the children and the financial repercussions for each party.
In cases where one spouse, following the date of separation, utilized their separate funds for mortgage payments or property improvements, they may be entitled to reimbursements. However, the spouse exclusively residing in the marital home may also bear financial responsibility to the community for the reasonable rental value of the property. It is crucial to have a realtor experienced in family law and a proficient family law attorney by your side to comprehend your rights and make informed decisions that align with your best interests.
Assessing The Value Of Your Home In Divorce Proceedings
In cases where divorcing spouses have mutually decided that one of them will buy out the other’s share in the family home, the question arises: how do you establish the value of the share being acquired? Specifically, the equity held by each spouse is contingent on the value assigned to the house at the time of division. In accordance with California law, the property’s value earmarked for division among the spouses should be determined as closely as possible to the time of the trial.
Spouses can enter into a stipulated agreement or stipulated judgment for the buy-out, setting any value or employing any methodology they both consent to. This can include referencing comparable property sales or a more in-depth analysis provided by a professional realtor. The parties may also come to a consensus on a real estate agent or appraiser to make determinations of value.
Should the parties fail to reach an agreement and request the Judge to determine the home’s value, each spouse has the opportunity to present evidence at the trial regarding the fair market value of the house at that time. Only under extraordinary and rare circumstances, like when one spouse had exclusive possession of the house post-separation and diminished its value, would the Court consider assessing the house’s value at the time of separation rather than the trial. The evidence presented by each spouse may involve expert testimony from a real estate appraiser, agent, or broker. Additionally, they can present documentary evidence, such as sales reports for similar properties generated by the MLS, although these reports do not encompass the intricate assessments an appraiser might provide. When faced with conflicting expert opinions, the Judge must make a single choice and cannot average the values. Unless the Court deems it necessary for the party awarded the house to sell it in the near future, estimated sales commissions, closing costs, and transfer taxes are not typically subtracted from the equity when determining the value for division between the spouses.
Once the house’s value is established, the buy-out amount for one spouse to acquire the other’s share is typically determined as one-half of the property’s value. However, if one spouse made a separate property contribution to the acquisition of the community property house, that amount is first awarded to the contributing spouse, with the remaining equity then divided equally between the spouses.
When One Spouse Transfers Ownership Of The Marital Home
To better understand the scenario, it’s crucial to refresh our knowledge of community property. Community property comprises assets or debts acquired during the marriage, excluding gifts and inheritances received by one spouse. Assets brought into the marriage are considered separate property, while anything acquired during the marriage is typically classified as community property. This article delves into what happens to a community property house when one spouse signs a quit claim deed, removing themselves from the title, and examines whether a valid “transmutation” has occurred, changing the community property house into one spouse’s separate property. Family Code laws present specific challenges for a valid transmutation in most cases, mainly Family Code Section 721, which imposes fiduciary duties on each spouse toward the other, and Family Code Section 852, which establishes the requirements for a valid and enforceable transmutation of community property.
Due to the fiduciary duties spouses owe to each other, if an alleged transmutation results in one spouse gaining an advantage at the expense of the other’s economic interests, a presumption of undue influence arises against the advantaged spouse. In such instances, the advantaged spouse must provide “clear and convincing” evidence that the transmutation was not a result of undue influence to overcome this presumption.
Section 852 mandates that transmutations must be supported and established through a written express declaration joined, consented to, or accepted by the spouse whose prior interest was negatively impacted. For a transmutation to be valid, the declaration must indicate that the spouse comprehends their property rights and that they are voluntarily giving up those rights. Even if this language is present in a quit claim deed or other written document, the transmutation is not automatically valid simply by satisfying Family Code Section 852 due to the fiduciary duties outlined in Family Code Section 721.
Spouses, in fulfilling their fiduciary duties, cannot exploit each other in property transactions and must prioritize each other’s interests equally to their own. Fiduciary duties set the highest standard of good faith and fair dealing between spouses, and these duties extend into divorce court until the parties are officially unmarried through a final Judgment of dissolution. When an asset is transferred between spouses during marriage without compensation (i.e., without value exchange), the transmutation is presumed invalid, resulting from undue influence. The burden of proof to establish the transmutation’s validity rests on the party making the claim, requiring clear and convincing evidence to rebut the presumption.
Asserting a valid transmutation can be an uphill battle. The advantaged spouse must demonstrate that the transfer was made freely and voluntarily, with full knowledge of all the facts and a complete understanding of its implications. The spouse holding title must present evidence pertaining to the intentions and understandings of both parties to substantiate the existence of a valid transmutation.
