Scott Levin and Tanya Ore explain how to divide a California home in divorce: sell it or one spouse buys out the other. They cover appraisals, the Moore-Marsden formula for separate property contributions, and why your settlement agreement needs a Plan B if refinancing falls through.
Chapters
Hi, everybody. I am here with Scott Levin today. My name is Tanya Ore. We're here to talk a little divorce. My— I am actually a certified divorce financial analyst. Scott is a wonderful mediator I work with most days. I wanted to give him an opportunity to introduce himself, and then we were going to talk about a couple of things.
Yeah, Scott Levin. I'm a family law attorney who helps people resolve disputes amicably. Through divorce mediation. So that's what I'm doing on the daily.
Thanks, Scott. And so one of the things that keeps coming up in a lot of my cases, whether it's a referral or whether I'm sending them back to you, is the house, right? The house is a really hot topic right now because the market is a mess and the feds just raised the rates, and people do not want to refi during a divorce. So can you talk a little bit about how the house works and how it works in mediation?
Yeah. So I mean, if someone comes to me and they own a house, quite common in my practice, you know, basically, if we're going to do a— if they're gonna sell the house, then they have to agree on, you know, whether they own the house equally or not. If they own the house equally, then they're gonna agree on to sell it, when to list it, whom to list it with. Do we share equally in any repairs that are needed? Oftentimes realtors will say, hey, we should paint or do this landscaping to get maximum value. And then, you know, you'll each receive, you know, your percentage of the net proceeds directly from escrow, usually into your own accounts. Sometimes we do put the funds directly in escrow into a community account, and then we clear all the community debt from that net amount. So that, like, it's oftentimes a good idea not to continue having, you know, joint credit cards with balances after the divorce. So we'll take that money, wash out on any community debt, and then split the numbers equally, or however you've agreed. So, you know, when you do a buyout, it's a little bit different. So one person wants to own the family home. That means that the other person will be bought out. So the owner will have to deliver some amount of funds to the person being bought out. So that they can retain sole ownership, essentially. So what are the buyout funds? So it's a, it's a fair market value of the home less the current loan balance. That gives you a net number. So let's say it's a million-dollar home and you have a $500,000 mortgage. So that's $500,000 net equity. Each of you own half of that. So that's $250,000 and $250,000. So that's like the most basic situation. So how do you arrive at a fair market value? That's sometimes an issue, Tanya. You know, that can be a dispute. And then one interesting issue, Tanya, is that oftentimes people aren't— there's not necessarily like the $500,000 that's the net community value. Oftentimes there's claims about how that should be divvied up different than each getting $250,000. So like, well, for example, Tanya, like when in your practice If someone says, hey, I— we own this house, it's worth $1 million, we own— we owe $500,000. But when I bought it, I owned it before marriage, right? Or I bought it with— I put $100,000 down into the down payment from funds that were inherited. And so I think that I should be credited with a bigger portion of the equity because of those things. What sort of things come up in your practice with the home in that sense?
Lots of things come up with the home in this sense, right? So one of the first places, just to comment on the property value, you know, there's a couple different ways to get that property value. Oftentimes people will choose an appraisal, not so much anymore, just because it costs money to get that appraisal. And at this stage people are kind of, do we really need to? The other place we get a value on the house is a comparative market value, comparative market analysis. I usually have a realtor I work with run that analysis, run a property profile for me because it helps me follow all the refinances because that comes into play also with the houses. Once we have that value and then we start having these claims, I put $100,000 of inherited money in, this money came from my 401 prior to marriage. That's when we really have to tease out, or I have to really tease out how much and when and what kind of money actually went in there. There's something called a Moore-Marsden in California that Basically assigns a percentage of the value of the home to separate property versus community property. Because what we need to figure out too is how much of your separate property generated appreciation, right? And in San Diego, God knows everything is all about appreciation. So it's a matter of really digging into factors like principal paydown. If there's a refi, it gets very complicated because then I'm looking at who refi'd what. I don't often get into the deed piece of it unless it's something that actually is telling as to how things went. But one thing I can say that people are trying to do, or divorcing couples are trying to do, is they're trying to check with their banks for an assumable mortgage.
Yeah, that's great.
And that way they don't have to refinance the loan to get the other person off the loan. They keep their same loan terms. They keep their same low ideal interest. Not all banks do it, but I definitely am telling everybody to start there when it comes to the home.
Yeah, what's interesting about a loan assumption is that they won't start the process until you have a judgment. So when you're doing a mediation and the loan assumption— so both people are on a mortgage, so it's jointly mortgaged. And if one person's gonna buy the other out, the problem is, is that with today's interest rates, Most of my clients have much better interest rates presently than they could get if they refinanced. And there's 2 ways to get someone else's name detached from a mortgage: refinancing, which requires refinancing at the current rates available, oftentimes 3 percentage points more than what your current one is. So that's not ideal, right? Because then you're paying more per month. The other way is this loan assumption. So, but when you're mediating, If you're going to try a loan assumption, you kind of have to tear out the agreement like we're going to do it, we're going to try a loan assumption. If it doesn't work, then what happens? And so you kind of have to play out both stories and have agreements kind of that are dual, you know, 2 different roads in the event that those both are needed.
You definitely need the Plan B, right? If assumable mortgage does not work, then this is how this will be handled. And I find that building in timelines The best you can, right? Because of course, sometimes the application takes a while, the loan takes a while. But once an answer comes in, yay or nay, I find that as long as a timeline is built into the MSA, there's actual— the marital settlement agreement— there can still be actual movement. But if it's kind of one of those, if it doesn't happen, then we'll sell the house, and that's it. Scott, I don't know if you see this, but people are like, without that specificity, specificity. It drags on and on, right? And you don't want that to happen at the end.
No, you have to have black and white rules in the end so that like, hey, for this period of time, like, only if both of us agree will this happen. But as of this date, if one person wants, you know, to get their equity out or to get their name up, then they have the right to demand that. So you have to play out those scenarios and make it black and white in the end so that there's not, you know, kind of a vagary that leads to conflict.
Nice job. I think so too. I'm glad we both agree there.
Well, we agree a lot, Tanya.
We do agree a lot. So that was great about the house. And so Scott and I are going to continue to talk about different issues, just some different blurbs here so we don't drown everybody in all of the divorce knowledge. But keep checking our channels and we will cover another issue. Have a good one.
