If I have a real property in community property states (e.g. California) that is to be divided equally during divorce, can I pay my spouse that equal amount instead of selling my real property? Could I legally do that? If so, what are the pros and cons of this approach? Thanks.
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7 Answers
It is normal that one spouse ends up with the property (if there is only one) and the other ends up being "bought out" of their equity. It's very rare for a final divorce order to leave a property divided between multiple owners.
What's normally done is that the total value of the community property is summed up and then one of the parties (or more often their lawyer) draws up a proposed division where they get a set of titled property, cash, debts, and other considerations (such as money paid towards community uses during the divorce) that sums up to half of the total value, and the other party gets the rest. If the other side objects, they draw up their own proposal and it goes back and forth until they reach an agreement.
You can propose that you keep the property in exchange for cash, but your spouse is under no obligation to agree.
If the parties are unable to reach an agreement in a reasonable amount of time, the court may order the contested property sold and its value divided. It will also order the same if neither party can come up with a proposal where they can buy out the other (which could happen if you have a lot of home equity and not a lot of other assets).
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2Forced sales could also happen in cases where there wasn't much equity and either party could cover the cost of the mortgage on their own. Commented May 3 at 22:32
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Why would forced sales occur if either party could cover the mortgage on their own? If either party have the money to cover the expenses, why would either party want forced sales? Commented May 4 at 0:06
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@fectin A forced sale will only happen if you can't afford to buy it (and neither can your spouse).– quaragueCommented May 4 at 20:17
can I pay my spouse that equal amount instead of selling my real property?
Yes. If you have the money or your spouse agrees to you paying in installments, you can "pay them out". The same is true for inheritances if all other parties agree by the way.
The courts do not care what form the transfer of valuables in a divorce or inheritance takes, as long as all parties take their allocated shares of the marital gain. That is defined as 50% of the difference in values that the marriage accrued between start and end. To do this, all property and valuables are accounted to the parties for the start of the marriage, and then at the end of the marriage. Next the difference for both parties is calculated. This is the marital gain. The marital gain is compared, and if one party has had more gain than the other, then the difference of marital gain is split 50/50, and that value is to be dispersed to the other party of the marriage to be dissolved under BGB §1363 (2). Also, note that either party's gains are strictly positive values.
However, the allocation can be heavily influenced by a marriage contract under BGB §1363 (~Pre-Nup), which overwrites the rule of a marital gains community and keeps the parties (partially) in the state of separation of goods. The contract needs to stipulate which assets are not accountable or to not accounted in the marriage at all.
Examples
Alice and Bob marry in Germany. Alice owns 1 million in cash, Bob owns nothing. They divorce after some time, and Alice' cash is still there, but Bob owns 200,000. Bob now owes Alice 100,000 under BGB §1363(2).
Charly and Dorothy marry in Germany. Charly owns 1 million and Dorothy nothing. They divorce, but Charly owns nothing as they spend it all, and neither does Dorothy. However, the marital gain can never be negative, the lowest it can be is 0, so Dorothy owes nothing.
Egon and Florence marry, Egon is 10,000 in debt, Florence owns 10,000. They divorce without gains: Egon's debts stay solely Egon's, Florence owns her 10,000.
A special case is marital debt: Gustaf and Helga marry, both without a penny. They take on 20,000 in debts and divorce. Now both parties are liable to pay off the debt as a community, which means both parties need to pay till the debt is zeroed.
In my case, I did not even get cash, but a promissory note. It was paid when she refinanced the home. I was a lien holder much like the primary mortgage holder.
This is where the cost of a divorce really is determined how reasonable each party acts. If it is nothing but motions to compel flying back and forth, the cost will be high. If the two parties can work out a reasonable agreement without the lawyer, then the cost will be much lower.
A good lawyer will point out that the party getting cash or equivalent will have their proceeds reduced to account for closing costs.
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1People often work out reasonable agreements with lawyers too. The unreasonable agreements that are reached are often the ones reached without lawyers. But settlement can be much cheaper and more satisfactory than "rolling the dice" and having a judge decide. Commented May 3 at 21:34
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1@Mimedfp Which makes a compelling legal argument that it is possible to do just that ;-). Commented May 6 at 12:12
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1@HelloDarkWorld I am sorry, I thought this would be obvious. If a home is liquidated the proceeds are reduced by encumbrances which would reduce proceeds to sellers. This might include commissions to real estate agents or local taxes commonly known as closing costs. So an argument could be made that the spouse that is moving out is due less money to account for closing costs (half) that would be incurred if the home was sold.– Pete B.Commented May 6 at 12:30
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1@HelloDarkWorld: I think Pete is just talking about oddities in how the money flowed. With the lien approach, the money flows from buyer to spouse 1 (owner/occupant), with spouse 1 ensuring that half the money is distributed to spouse 2. Legally distinct but easier to mentally model would be for the house to be owned/sold jointly, possibly depositing the money into an escrow account and then distributed to both parties. I suspect the lien approach is mechanically far simpler. In an especially acromonious divorce, it's possible that neither party wants the other party to handle the sale.– BrianCommented May 8 at 13:57
If I have a real property in community property states (e.g. California) that is to be divided equally during divorce, can I pay my spouse that equal amount instead of selling my real property?
There are two ways that property is divided in a divorce.
One is by mutual agreement of the divorcing spouses.
The other is by an order of the judge in a divorce decree.
In a community property state, the judge can divide the property pretty much any way the judge wants, as long as the fair market value of each spouse's share of the community property is equal. The judge can order a house that is community property sold, or can order a buyout.
But, while you can tell the judge which option you prefer, you have absolutely no say on how it is done.
If the house is worth $500,000, and it is to be sold and the price divided up, and you have $250,000 or can get a mortgage, then you can bid up to $500,000, and if that is the highest bid then you get the house for $500,000 and as half the sellers you get half the purchase price back instantly.
If I am a third party and offered $520,000, then I will get the house and you will get $260,000. If you want the house, you have to offer $520,000 or more and it costs you $260,000.
On the other hand, if the former spouse wants their new lover to buy the house for $400,000, so you would get only $200,000 instead of half the real value, then you can outbid them.
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I don't quite get what you are trying to illustrate here. Can you please elaborate? Thanks. Commented May 4 at 18:31
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1The house has a value and a sale price, which should be the same but will not be exactly the same. So if OP wants to keep the house and hand over cash, both OP and the ex-spouse would need to figure out what the value is. Commented May 5 at 21:18
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2@HelloDarkWorld, The point is, you cannot know the fair price of a parcel of real property except by actually selling it on the open market. Every property is unique, and the price that the market will pay changes from day to day. Commented May 5 at 22:14
Yes, there are many ways to split the total of all assets 50/50 besides liquidation.
For example - agree on a value for each asset then try to agree on an division of them into two groupings having an equal total.
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If you were to get divorced, your community property would be divided.The exact specifics of it can not always be decided to an exact granular detail beforehand.
You have two options:
1. You can have an agreed upon motion.
If you and the former spouse agree that is best, you file a motion together asking for an order stating that
2. You can file your own motion.
If you and the former spouse do not agree, you can ask that it be ordered.
It is often better to work these things out before a divorce and to have an agreement in place beforehand.
