Should I Sell the House or Buy Out My Spouse
You spent almost two years finding your home. Then you spent another two – three years remodeling it. Since then you have spent 10 years adding, changing, and making your home the perfect place. Your kids have grown up there and it is their palace. It is a beautiful home and is worth a fortune now.
All of sudden your spouse tells you that he (or she) is filing for divorce (maybe because of all the time you spent on the house) and moves out.
So what happens to the house now?
As you may know, California is a community property law state, which basically means that there is a presumption that all property (including the home) acquired during marriage is divided 50 – 50 between the spouses upon divorce* (See note below).
So do you get a chain saw and cut your multi-million dollar home in half (See: War of the Roses)?
Not really, you have the right to offer your spouse to buy out his/her interest in the home.
Usually parties try to agree to a joint appraiser to appraise the current market value of the home. Based on the appraised value, the purchasing spouse would need to come up with 50% of the equity (market value of home less agreed debts on the home) to buy out the other spouse's interest. Note that when calculating a buyout value, courts usually do NOT consider any future adverse capital gains taxes or sales commission costs, if you are not selling the home now. Accordingly, if there is a possibility of a real high capital gains hit, you might strongly consider selling your home rather than buying out your spouse.
Another problem occurs if your spouse has moved out of the house after the announcement and left you with exclusive use of the home.
Depending on your circumstances, you may be charged with additional amounts for each month that you reside in the home alone after separation.
These charges are commonly referred to as Watts charges (after Marriage of Watts, 171 Cal.App. 3d 366, 388 (1985)). They are based on the assumption that both you and your spouse could hypothetically rent your home out after your separation. Any monies left from any rents received (after payment of mortgages) would be "community" incomes which you or your spouse would have a right to half of.
For example, your home's mortgage is $3,000 a month. After separation, your spouse obtains a fair market rental value appraisal which states that based on comparable rentals your home could be rented out at $5,000 a month. The difference in the home's mortgage and fair market rental value ($2,000) is a technically a community interest. Since you have had exclusive use of the home, you would have to account for one half of that value ($1,000 a month) to your spouse as Watts charges from the date he or she moved out.
Upon final division the court may account for the $1,000 a month charges and may give your spouse credit for these charges.
Bottom line, if your mortgage is fairly low compared to the rental value of your home, you might also be better off moving out of the home and asking that the house be listed for sale or rent as soon as possible, so you will not get hit with any Watts charges.
Rod Firoozye, Esq.