Divorces and real estate go hand-in-hand because when a husband and wife get a divorce, they divide their assets. Most family's largest asset is their home which can't be split down the middle, so divorce will most likely lead to the disposition of an old home and the acquisition of new ones.
To answer some frequently asked questions about divorce and real estate, we interviewed Kelly Chang Rickert, a prominent Family Law attorney in Los Angeles. Kelly was kind enough to share her expertise as a Certified Family Law Specialist with our readers.
California is a community property state... what typically happens to a home after a divorce?
Typically when you go through a divorce and you own a home, the parties would try to settle and reach an agreement as to what happens to the home. If the parties cannot agree, then the court will order a sale.
Does the agreement usually happen through mediation or in court?
It can happen at any moment. Divorces run the gamut. You can have an amicable divorce where a spouse will say, "You keep the house until the kids are in college and then we'll sell it" or "You keep the house. It's in your name. You can buy me out." Or, you can have a hateful divorce where you can't agree about anything, and you go to Court every week. Expect to spend between 5k - 20k per court appearance.
I think a lot of people get confused about divorces and think "We hate each other we're going to court," but that's not necessarily true. A divorce is a break-up with children and assets. You should sit down and figure out what's going to happen because if you don't figure it out, the courts are going to figure it out for you. And they don't know anything about you and your life except for the paperwork you filed. Don't leave your fate in the hands of a judge. If you get divorced and you own property together, I would sit down and amicably divide it.
Which means selling the home?
Well, if there's a ton of equity, you can refinance and buyout the other person. If the home was purchased during a marriage, it is community property. If there is $100,000 in equity and all of it was earned during the marriage, then $50,000 belongs to each side. The person who wants to buy the home would pay the other side fifty-grand. Then he or she can keep the house and make the mortgage payments on their own.
Would a prenuptial agreement affect who gets the property?
Yes, absolutely. If you get married and already own a home, during the marriage, all of the payments that you make on the home are community. So if you want to keep the house separate, because it hasn't been paid off yet, you want to make sure that you get a prenup saying that all the payments are going to be made from a separate account and there's not going to be any community funds involved. NEVER CO-MINGLE ACCOUNTS. When you leave, you still own the home--your spouse can move out and own nothing of the home.
Once the home is finished being paid for, does it eventually become community property or does the prenup protect you forever?
Well the prenup is pretty limited in coverage. You have to make sure that your actions follow what the prenup says. In California, anything that's acquired after the marriage, before the date of separation, is community property--which means, all earnings.
Typically you'll have a couple where one spouse bought a home before the marriage and they took out a mortgage, so basically they don't own the home outright because they still owe the bank a ton of money. During the marriage, all of the payments that he or she makes come from income earned during the marriage which is community property. Basically a portion of the home from the community payments become "community". It's still separate because it was purchased before the marriage, but the payments made on it--if they're coming from earnings while married and they don't have a prenup--become community. And that's how we get the Moore/Marsden Equation which calculates what the community component is.
If you have any properties before the marriage, you want to make sure you get a prenup that says nothing is community property. If you own a home, get married, but still owe the bank--you want to make sure the payments made during the marriage on the house payments come from a separate account and nothing is ever comingled. That way if the time comes and G-d forbid you get a divorce, there's no community component. It is very clear, and there is nothing to argue about.
"A divorce is basically one family split into two."
Can you provide any tips for a husband and wife to prepare for a divorce?
I would make a list of all your assets, and most importantly--be amicable. When people are angry and jealous they try to use money to cut each other's throat. The best thing to do, especially if you have children, is to sit down and really work out the logistics.
A divorce shouldn't be handled by attorneys - except for the simple paperwork. A divorce is basically one family split into two. You have to sit down with your spouse and be like "We have kids together; how do you want to handle this? I can't presumably be the mommy and the daddy."
In my experience as a divorce attorney, it's difficult when a parent says, "I want full custody." It's not going to happen. Unless the other side is a drug addict, in jail, or killed someone, or moved cross-country, you're not going to get full custody-it's going to be joint. America likes that. Now, other countries are different. Japan is different. Japan doesn't believe in joint custody. Japan usually awards custody to the mom, period. But in America, unless there are extenuating circumstances, it's always going to be joint. Now, Joint Custody doesn't necessarily mean 50-50 share. You may have Dad seeing kids once a week, or once a month - but that is still considered "joint custody".
When you go through the divorce, make sure to value your house. If you bought it for $500,000, and you owe the bank $450,000, and right now the market says it's worth $400,000--you have a loss. You should figure out what you want to do about that loss. I would probably sell it and walk away.
"When the divorce happens and you try to refinance based on one person's income, it's going to be very hard, especially these days when the banks don't want to loan to anybody."
If one of you thinks that you can hold onto it and the bank will refinance while the other side can walk away without debt--then I would refinance and keep it. It's often hard to do that though, because many homes are purchased with both spouses' incomes and credit scores. When one person leaves the equation, the banks are not as likely to offer you a loan in that same amount.
So refinancing becomes more difficult in that situation because you don't have the combined income?
If it was always a single income family then we have no problem, but most of the time you have a two-income family that buys a home. When the divorce happens and you try to refinance based on one person's income, it's going to be very hard, especially these days when the banks don't want to loan to anybody.
I hear people say, "My wife divorced me and took the house." Does that ever happen or is that just how assets were divided up? Like one person gets the house and the other person gets other assets...
Exactly--it's the latter half. So when one person is like "Oh we got a divorce and she got the house" they're not really telling you the whole story. She may have gotten the house, but he may have gotten equity in other things in the same amount that the house is worth. These days homes are not worth anything unless you bought it 30 years ago. Typically what we have these days are very short-term marriages where couples bought a house at the height of the market around 2007 and 2008, and the home has actually lost a lot of value, so there's no worth.
Do you ever see couples walk away from a divorce because they can't afford to?
Yes, definitely. I had a guy once who realized he had to pay a ton in alimony so he said, "It's cheaper to keep her." And dismissed the divorce.
I heard that you often encourage people to work it out instead of get a divorce?
Oh yeah--it's always cheaper! I mean basically, you're going to fight in a divorce. Nobody ever wants to go to court-why would you? Lay people think that court is like Law and Order and everybody has to go, but the reality is, you never have to go to court unless you can't agree on something. If it comes down to something like "who gets the garage door opener"--do you really want to spend thousands of dollars to go to court and see who the judge is going to award the garage door opener to? No! You want to work it out-it's much simpler.
Does a divorce hurt your credit?
It depends... if you let your home go into foreclosure, your credit is going to suffer, but it has nothing to do with the divorce. If you get a divorce and all your payments are still being made, that's not going to affect your credit. However, if you get a divorce and suddenly the wife can't make the payments and she goes into foreclosure, but the home is in both the husband and wife's names, both of their credits are going to be hit.
The divorce itself doesn't affect your credit-it's what can happen in a divorce that could affect your credit.
How should someone choose a family law attorney to work with?
First thing I would do is research them. These days Google is your private eye. If you go online and research divorce attorneys, I would make sure they are a Certified Family Law Specialist.
If you were having heart surgery, would you go to a general practitioner to do your open heart surgery? Probably not. Would you go to a brain surgeon? Probably not. You'd go to a heart surgeon. The reasoning is the same thing with a divorce attorney. Pick an attorney that specializes in family law and not a general practitioner because they will screw up your divorce.
A lot of people come to me and ask, "My first attorney screwed it up, but since the case already started is it cheaper?" I have to say, "No--it's more expensive because I have to undo the screw up." It's like if a roofer is supposed to patch your roof but instead messes it up. Now the second roofer has to take off the roof and then fix it--so it's double the money. If you pick the wrong attorney who's going to screw up your case, it's going to cost you tenfold to fix it.
Specialists charge more. General practitioners charge anywhere from $100-$200/hour while a specialist is going to start you off around $500-$1000/hour. It's expensive but it's worth it.
Is there ever a time would a divorce attorney would handle both spouses or is it always one or the other?
No, it's always one or the other because otherwise there's a conflict of interest.
What is your outlook for the real estate market in the coming year?
I think it's going to stay low. I don't think it'll pick up and I don't think it's going to drop anymore... I think it's going to stay status quo. So if you have real estate, hold for now. It should pick up in the next 5 years, but not this year.
Thank you Kelly for the great interview full of valuable information about California divorce!
