2011: Selling Your House in San Diego: Divorce or Legal Separation

Are you in a legal separation or divorce in San Diego? As part of the divorce or legal separation, are you selling your house? San Diego is a very volatile real estate market and it is important to make sure you understand the benefits and disadvantages of selling your house in your divorce or legal separation. There are several factual situation which can occur during the sale of your house in the legal separation or divorce: you buy out the other spouse; the other spouse buys you out; you sell the house for a profit or you sell the house for a loss or the house is foreclosed or short sale.

In many divorce or legal separation case in San Diego, one spouse would like to purchase the residence from the other spouse. This has benefits and consequences for both spouses. A very good idea is to select a mutually agreed upon licensed real estate appraiser for the fair market value of the house. In this way, both spouses can make an informed and intelligent decision. Purchasing the house may make the most sense since a deposit is not needed and the house is already financed and purchasing a new house would require a deposit and also financing. Normally, when one spouse purchases the house, they do have to refinance the house in their own name and the other spouse signs an inter spousal quit claim deed and this is done in the escrow. The benefit for the spouse who is being “bought out” is that [normally] no costs of sale are deducted from the fair market value of the house and no improvements need to be made for the sale. In addition, in the refinancing, this spouse is relieved of all liability for the house and the payments. If the house goes up in value, the purchasing spouse obtains all of the equity gained and, if the house goes down in value, the purchasing spouse accepts all the losses. It is also important to remember that there is a relationship {financially for support} for keeping the house. In calculating guideline child and spousal support, one of the itemized deduction is for interest paid on a residence as well as property taxes. Contrary to what some consider common sense since it is an expense to keep the house, the payor is allowed to deduct the interest and property tax from their taxes which has the net effect of reducing their taxable gross and the resulting net effect of increasing the support payments. If the payee is keeping the house, then this would result in a lowering of support under the same theory. As such, when considering whether to keep the house, make sure to have your guideline support calculations run including the interest and tax deductions so you can see the effect and decide whether buying the house from the other spouse is in your best interests. There are many considerations aside from the above and you should obtain all information to make the most informed and intelligent decision.

If the house is to be sold, one consideration is whether to let the potential buyer know this is a divorce sale. If the buyer knows this, they may think you are forced to sell {and may be correct} and this may lower the price. If you sell the house for a profit, then all of the net profit is divided one half each unless there is a right of reimbursement such as an inheritance or gift or other separate property being used for the down payment or payments on the house. If you sell the house for a loss, again normally, this loss is divided one half each unless this is a negative asset case or some other family law code. If the house is foreclosed or short sold, then any deficiency sought by the lender would be divided one half each.

If you have any questions regarding buying out or selling your home in a San Diego divorce or legal separation case, please feel free to contact us for a confidential consultation.