When homeowning couples divorce, only one of them can retain possession of the property where they lived together. Decisions about possession may reflect prior attachments to the property, connections to the community, the ability to afford the mortgage or the couple’s custody arrangements. However, they both have an interest in the home under California’s community property statute.
Regardless of who stays in the home, the other spouse has a right to receive a portion of the equity accrued in the property. How can divorcing California homeowners effectively address accrued home equity?
Selling or refinancing is common
Each spouse has the right to receive an equal portion of the equity accumulated during the marriage as part of the final property division settlements. Spouses can potentially make the division of equity straightforward by selling the home and evenly dividing the sale proceeds after repaying any remaining balance on their mortgage.
If one spouse intends to keep the home, then they typically need to refinance to remove the other spouse from the mortgage note. While refinancing, they can withdraw equity to compensate the other spouse for their interest in the home.
If doing so might increase mortgage payments to an unsustainable level, then the spouses can potentially account for the value of home equity when dividing other marital property or allocating responsibility for marital debts. A retirement account or business equity could potentially offset home equity in a property division settlement.
Determining the current fair market value of the home is often the first step toward splitting equity fairly in a California divorce. Spouses concerned about community property rules and their finances often need legal guidance during a divorce.