Finance

How to Sell a House During Divorce in California

February 10, 2022

Getting a divorce can be a complicated and emotionally fraught experience. No matter how fond the memories or how amicable the separation, dividing each marital asset and marital property, can put even the most civil couple through the wringer.

This is especially true when it comes to selling your family home and dividing the real estate’s equity between you and your divorcing spouse. To protect your interests and follow the law, here’s what you need to know about selling a house during divorce in California.

California Laws Regarding Marital Property

California considers any assets or valuables in your possession to be marital property. This includes everything from personal items like clothes and jewelry to larger items like cars, boats, and yes, houses.

But property also refers to monetary assets, like money in bank accounts or investments, intellectual property, or patents.

Each item of property is designated in one of the three following ways:

Community property – Community property refers to any property that was purchased or acquired by both spouses during the marriage. It belongs to both spouses equally. If you bought your home while you were married, it is likely community property.
Separate property – Separate property refers to property that was purchased prior to the marriage. It also includes any gifts or inheritance acquired during the marriage that were specifically intended for only one of the spouses. If you inherited your home, it’s probably separate property.
Commingled property – Commingled property refers to situations where the line between separate and community property has been muddled. Generally, this is more common in longer marriages.

When you divorce, you’ll need to find a way to split the equity in your home (as outlined in your divorce settlement). In many cases, selling the home is the most straightforward solution.

Where to Start

When it comes to selling a house during divorce in California, the first thing to do is determine ownership. In most cases, this means determining whether the house is separate or community property.

When making this determination, it will be necessary to consider:

The title – If the house was purchased before the marriage, it is likely considered a marital home. If the house was purchased before the marriage, there’s a good chance that only one spouse is listed on the title. In most situations, the titled spouse enjoys full legal ownership of the house.
The mortgage – If both spouses have contributed to the mortgage payment, the house may be considered community property under California community property law, even if the house was purchased by one spouse before the marriage. Likewise, if the non-titled spouse can prove that the house was purchased with the intention of community ownership, they may have an ownership claim.

Once you’ve determined ownership, you can begin investigating your options for equitable distribution and selling the house.

Options for Selling a House During a Divorce

In general, a divorcing couple has two options for selling their home under California law.

If the house is community property, both spouses may jointly sell the house to a third party and split the equity according to the terms of their divorce settlement.

On the other hand, one spouse may offer to buy out the other—that is, one spouse will pay the other for their share of the house. A divorce house buyout might seem straightforward, but the specific process can differ depending upon whether the house is mortgaged or fully owned:

Owned – If the house is owned out-right, one spouse pays the other for their share in the house’s equity.
Mortgaged – If the house carries a mortgage, the remaining spouse will usually have to refinance the loan in their own name. This removes the other spouse from ownership. Funds from the refinancing can also be used to buy out the other spouse during the divorce process.

How to Split Home Equity in a Divorce in California

Wondering how to split a house in a divorce following California law? In California, community property—including equity in homeownership—is split evenly between both spouses during property division, with each receiving 50%.

If you have other assets, however, you may be able to let your spouse keep those while you take a larger share of the equity.

In a California divorce, home equity is determined by what’s known as the Moore-Marsden analysis to determine a fair division of equity. This complicated formula considers factors like:

Market value at the time of marriage and divorce
Purchase price of the house
Principal paid during the marriage
Increase in value during the marriage

Once you’ve arrived at the final numbers, it’s time to choose a path forward—whether that means refinancing, selling your home, or choosing an alternative like a sale-leaseback.

Sale-Leaseback, Your Home Equity Alternative

Selling a house during divorce in California can seem complicated. Wondering how you can get the funds together to buy your spouse out of their share of your house? A sale-leaseback may help with that.

Through a sale-leaseback, you can turn your equity into cash without giving up your home. You simply sell the home, freeing yourself of a mortgage while getting the cash you need, but stay in the home as a renter. Whether you want to stay in your home for a few months or for the long term, a sale-leaseback program can help free up funds while you settle your divorce.

Consult with a financial advisor to explore your options.

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