The Marital Home and Divorce

If after reading the previous post you have decided to let your spouse have the house so you're not left with a big monthly liability on an asset that is worth less than what is owed, there are a few other matters with which you should be aware.

The most common misperception is that when one party or the other is awarded the house in a divorce, they are not obligated to refinance the mortgage in their name alone. In other words, they get the house while you remain legally liable on the mortgage. Many people are taken aback when they learn this, and concerned about the other party's financial ability and responsibility to maintain the ongoing obligations on the property. Even where the other party is financially responsible and timely pays all obligations on the property, what about your credit profile and ability to qualify to buy your own home one day?

If the other party receives the marital home (and the mortgage, taxes and insurance), you are no longer a legal owner of the house. As part of the Judgment in the dissolution you will be required to execute an Interspousal Transfer Deed that removes you from title and places the title in the name of your ex-spouse as their sole and separate property. But this does not effect your relationship and contract with the mortgage lender. You will still be legally liable for that mortgage until it is paid or refinanced.

 But you do have legal recourse in the event of default on the mortgage. To be clear, you should insist any Stipulated Judgment or Marital Settlement Agreement contains a phrase granting the Court continuing jurisdiction on the issue of the marital home until the mortgage has been satisfied. Then, if the other party becomes delinquent on the obligation with negative results to your credit profile, you may petition the Court to order the house sold immediately or awarded to you. This does not prevent damage to your credit, but will minimize the impact.

 Credit grantors are aware of the impact of divorce on individuals, and the fact a default occurred on the fault of an ex-spouse will be taken into consideration. Mortgage lenders are also used to divorce, and many will allow you to qualify to purchase your own home even when you remain legally liable on your ex-spouse's home after a period of time. Giving the house to your spouse does not mean you are without protection and unable to buy your own home.

But when negotiating the terms of a divorce, it is important to consider whether it is prudent based on the spouse's income and financial responsibility. If your spouse does not have a solid employment history, if he or she has not typically paid bills on time and been responsible, or if their income is not sufficient, it may be more prudent to insist the house be sold if possible.

While it may be easy to make the decision to walk away from a house that is upside down, in some marriages neither party alone is capable of making the mortgage payment. In that case you are looking at a short sale or foreclosure. Many people want to do a short sale and start over, but not many are successful. The lender typically takes light years to respond to short sale offers, and buyers often run out of patience. When decisions relating to the disposition of a house in divorce become difficult, it is important to obtain help. An attorney obviously can help with structuring a judgment, and a real estate agent with extensive experience with short sales and a good mortgage broker can serve to protect you from making a wrong decision that may harm you for years. If you are in the Sacramento area call me at (916) 921-9500.

How the Economy has Changed Divorce

Until 2007 when the housing market starting taking a nose dive, the issue of who would be awarded the marital home was determined by which party had the financial means to buy the other party's interest in the property. So if at the time of trial it is determined that marital home was valued at $100,000 in excess of the amount owed, then the party with the ability to pay $50,000 to the other party would be awarded the house.

Even if neither party had $50,000 in cash to pay the other party, one side probably could refinance the house to take out the money to pay the other party if they could then afford the resulting increase in monthly mortgage payments. Sometimes both parties were in a position to do so. In addition, the "buy out" of the equity in the marital home is balanced against the division of other property. For instance, if one party received $100,000 in equity in the marital home, and the other received $100,000 in other assets, then neither party would owe the other. Debts must also be taken into account.

But in today's economy, when it comes to deciding who gets the marital home, the issue more often is who is stuck with the house? Because now we have half or more of all properties "upside down" in value. Now we have a house being awarded to one party or the other and there is not only no equity, the house is valued at less than what is owed on it. And no, the person who gets the house does not get to take it for negative value. They get it for nothing, but they are stuck buying a house for more than what it is worth!

When neither party wants the house we sell it, right? But it is difficult to sell a house that is worth less than is owed. This means a short sale. That means both parties suffer a hit to their credit. Once, the parties in a divorce sold their house and each received enough money from the sale to go out and buy a new house. Now parties let their house go into foreclosure and both have difficulty even renting a home because their credit has suffered. 

Divorces today are characterized by a house worth less than what is owed, one spouse who has lost their job or experienced a cut in pay, increased debt as a result of a loss of income, and almost nothing but personal property to divide when all is said and done. Some couples just can't afford to get divorced.

Reviewing Your Spouse's Disclosure

As I mentioned, receiving your spouse's Preliminary Declaration of Disclosure gives you the first real look at the areas in which you and your spouse agree and disagree. But it may also tell you other things. Aside from noting the differences you may have in valuation, you must pay particular attention to what their disclosure does not say. If assets or debts are omitted, you must find out why. If the Disclosure claims a community asset as separate property, you must find out the basis for the opposing party's claim of separate property. As well, sometimes the opposing party may make a claim of separate property contribution towards a community asset. That means your spouse is claiming a portion of a community asset is their separate property, perhaps because they made payments from a separate source, or they used separate funds for a down payment or improvements.

Remember, community property is all assets and obligations acquired between the date of marriage and the date of separation, except for gifts or inheritance which is separate property unless it has been commingled with community property. But an asset acquired during marriage may have a separate property 'contribution'. The party claiming the separate property component has the burden of proving the separate contribution. That usually means the party claiming the separate property contribution has the burden of producing a paper trail, usually banking records, that demonstrates the funds came from a separate source and were contributed to the community asset.

When we divide assets and debts in a divorce, California law requires there be an equitable division of the marital estate. That means each party should be awarded marital property in equal values, but the court is not required to divide each asset in half. For instance, the automobile you typically drive should be awarded to you with the obligation on the vehicle, if any. If the vehicle has a fair market value of $15,000, and there is an outstanding loan balance on the vehicle of $10,000, the vehicle will be awarded to you at a net value of $5,000.

 The values of assets are determined by various methods. A house should be formally appraised if you are going to trial and the parties do not agree on a value. But you may start the process by getting comparable sales from a realtor. Try to resist obtaining property values from online real estate valuation websites. They are not accurate and judges do not rely on them. An appraisal is the best method of valuation, and comparable sales are the next best method. Vehicles can be valued by utilizing private party (not retail or wholesale) values from Kelly Blue Book or other auto valuation web site. Finally, other assets such as household furniture, furnishings and appliances are simply valued at what you could get for the item if you put an ad in the paper and sold it.

This leaves a lot of room for disagreement on items that are not formally appraised. The courts typically will not spend much time entertaining the parties' arguments regarding valuation of household items. If one spouse thinks a TV is worth $1,000, and the other thinks it is worth $400, the court may simply award the TV to the spouse who believes it is worth $1,000. In the alternative, the judge may simply order that all such property for which the parties are unable to agree on a value be sold with the net proceeds split equally. This is where you and your spouse need to each to do some compromising on values to reach an agreement.

Another difficult situation is what to do with an asset that both parties want. Does the flat screen Television with surround sound go to the husband or the wife? Husband may argue the television was a Christmas gift from wife, but wife testifies it was a gift to the family. Who is the judge to believe? Again, if husband believes the television is worth more than wife does, the court may simply award it to husband at the higher price, or the judge may order the item sold with the proceeds split so no decision has to be made as to who gets the television.

 The lesson here is to be very careful when valuing assets in a dissolution. Often the spouse who does not have the asset will value it higher than the spouse that has possession, because he or she wants the other spouse to be charged a higher value for purposes of calculating an equal division of the marital property. This tactic can backfire on the spouse with the higher value if they do not want the asset and the court awards it to them at their higher (inflated) value. On the other hand, if the other party has an asset that you want, one tactic to take at trial is that you will take it at a higher value than the party who has possession. 

There are more issues with property valuation and division in a dissolution that I will discuss later. In particular, the decline in property values has created a different dilemma with many houses now worth less than what is owed on them. It is not uncommon now for neither spouse in a divorce to want the house. Check back for how divorce can mean the loss of a house and your credit.

Evaluating Your Case for Settlement

Once you and your spouse have completed your Preliminary Declarations of Disclosure and served them on each other, you should evaluate your case for possible settlement.  This is where you learn what community assets and obligations exist, along the values for each. You will also learn your spouse's position with respect to the separate and community nature of the assets and obligations.

In reviewing your spouse's Disclosure, make certain he or she has provided all of the information requested and attached appropriate supporting documentation. For instance, disclosure of banking accounts requires providing the branch name and address, account number, and current balance of the account. This statement should be accompanied by a copy of the most recent monthly statement of account, as well as the monthly statement for the month of separation. You should make a list of anything that you think has been omitted.

Next review your spouse's Declaration and check the claimed values of the assets and balances due on debt. Make a note not just of those values and balances that differ significantly from your own, but also note where you substantially agree on values and balances. The more you agree, the closer you are to settlement.

Then make a note of any assets and debts listed that are not supported by documentation. Such as a credit card obligation in a disclosure for which a corresponding statement has not been attached, or a bank account without a supporting monthly statement. If you do not have your own copy of the missing documents and are unable to obtain them yourself, you should insist your spouse provide them. The purpose here is to learn the basis of the other party's claims with regard to the values of property, the balances due on debts, and the basis for community or separate characterization of the asset and debts.

Remember, if you are represented by counsel, he or she is doing this for you. But you should be involved in the process and aware of all of the details. This stage of the dissolution process is often the most difficult and where most of the time is spent. It's where you learn how close or how far you and your spouse are from settlement.

It's also much too complicated to cover in one posting. I will discuss it in more detail later. My point here is that this is the first real opportunity you have to learn the other party's position on the property and debts, and on what issues you are likely to agree or disagree. You also should acquire sufficient documentation on the various assets and debts for which you did not previously have documentation with which you can verify values and gauge whether your own figures are accurate.

Check back in a few days to read more about evaluating your case for settlement, how assets and debts are divided, and making a settlement offer.

Declaration of Disclosure

At the time of filing the Petition (or Response for the Respondent), or soon after, each party should serve their Preliminary Declaration of Disclosure on the other party and file a Declaration Regarding Service of Declaration of Disclosure with the court. The Disclosure itself is not filed with court. In every dissolution of marriage or legal separation, each party is required to serve the other with a Preliminary Declaration of Disclosure and a Final Declaration of Disclosure before the Court will enter a Marital Settlement Agreement or set a contested matter for Settlement Conference and Trial. In an uncontested dissolution or legal separation, the parties can agree to waive a Final Declaration of Disclosure, but a Preliminary Declaration of Disclosure is mandatory.

The disclosures must identify all assets and debts of each party, as well as their monthly income and expenses. For each asset and debt, the parties must also state whether it is community or separate property, when it was acquired, the value, and any loans. It is also necessary to attach copies of relevant supporting documentation, which is set forth on the forms.

Declarations of Disclosure consist at a minimum of a form Income and Expense Declaration, and a Schedule of Assets and Debts. The Income and Expense Declaration must be accompanied by copies of the party's last three pay stubs or, if self employed, a complete copy of last year's tax return and profit and loss statement as supporting documentation. In other words, your claimed income must be supported by proof. The Schedule of Assets and Debts lists all:

• real estate, 
• household furniture, furnishings and appliances,
• jewelry and personal items,
• motor vehicles, boats, motorcycles, RVs, travel trailers,
• checking and savings accounts,
• investment accounts,
• retirement accounts,
• tax refunds and liabilities,
• debts, and
• miscellaneous assets or obligations.

For each category the form specifies the supporting documentation that should be attached. The purpose of Disclosures is to make settlement negotiations easier, and to ensure neither party is concealing assets or obligations from the other. The California Family Code provides sometimes severe penalties for a spouse who willfully fails to disclose assets or obligations. If you are considering not disclosing an asset or debt, even because you think it is not significant or believe the other party clearly recognizes it as your separate property, the other party can probably have a judgment of dissolution set aside after it is entered on the basis that you failed to disclose a significant asset or debt. It's just not worth the risk. you may end up re-litigating or renegotiating your divorce and you will look like you have something to hide. For a community asset that is willfully concealed, the court even has authority to award the entire asset to your spouse as a penalty.

Let me tell you it is not uncommon for someone to come into my office saying their divorce is complete and judgment has been entered, but for one reason or another they are very dissatisfied with the Court's judgment after trial or a settlement agreement they entered into. The first thing I look at is the other party's Disclosures to see if they omitted something. If I find something significant, especially if it leaves an arguable issue as to whether the settlement was a fair and equitable distribution of the marital estate, I may have an opportunity to have the judgment set aside. Your divorce was probably bad enough the first time. Don't be sloppy with your disclosures and have to do it again.

Temporary Orders

Often at the beginning of the divorce process, it is necessary to put temporary orders in place for child custody and visitation, child support, spousal support, and sometimes property orders. These orders are not meant to be final determinations for a parenting plan, appropriate support levels, or division of property. They are just as the name indicates - temporary orders. They are intended to provide stability for minor children and allow each party to maintain the same standard of living as existed during the marriage until the divorce process is complete.

As always, the courts would prefer the parties to a divorce reach their own agreement for support and a temporary parenting plan. However, if that is not possible one party or the other may file a motion requesting the court make orders. This is accomplished by filing a form Order to Show Cause or Notice of Motion with a form Application for Order, which may be accompanied by a written Declaration of the moving party providing specifics as to the orders requested and the reasons for the moving party's requests. Once filed a hearing date is set for a month to six weeks in advance, and the opposing party will file a Responsive Declaration agreeing or opposing the moving party's specific requests.

If child or spousal support is an issue, each party must also file an Income and Expense Declaration and attach copies of their last three pay stubs or other evidence of income. If child custody and visitation is in dispute, the court will require the parties to participate in mediation regarding child custody and visitation. A child custody mediator's objective is to try to get the parents to agree on a parenting plan, but where and to the extent the parties are unable to agree the mediator will make a written report and recommendation to the court regarding child custody and visitation (I will not go into great detail of the mediation process here, as it deserves a more through discussion later).

 At the hearing on the moving party's requests, the court having either an agreement for a temporary parenting plan or a mediator's recommendation as to the best interests of the minor children, and evidence of the party's respective incomes, temporary orders can be made for child custody and visitation as well as child and spousal support. These orders will remain in place until they are modified by agreement of the parties, a subsequent court order, or a final judgment is entered.

On the one hand, I tell people not to get too caught up by not getting exactly what they want in temporary orders because they are just that - temporary. On the other hand they can set a precedent or status quo that may require a significant change in the parties' circumstances to modify. This is one area where experience with the dissolution process and good advice can make a big difference in the time you have your children and the amount of support you receive or pay. Divorce is not a simple matter. It shouldn't be. You should retain an experienced attorney to represent you if possible, and if not you should find one to give you advice on how to proceed on your own. Many good attorneys will counsel litigants on an hourly basis, prepare paperwork if necessary, and advise them how to handle specific issues.

After Service of Summons and Petition

After serving the Summons and Petition on your spouse, they have 30 days within which to file and serve their Response. If they do not file their Response within 30 days, you have the right to file a form Request for Entry of Default. When the Clerk of Court receives your Request for Entry of Default, they will verify your spouse has not filed a Response and if they have not they will enter default against the opposing party. And you've won, it's that simple. I'm just kidding, its not really.

Often, entering default against the opposing party as soon as possible is a waste of time. I am never quick to do so. The reason is that California Code of Civil Procedure section 473 provides liberal grounds to set aside a default on various grounds, including "oops I forgot." If you rush to the Clerk's office and file a Request to Enter Default, the opposing party will have up to 6 months to have the default set aside almost as easily as you had it entered.

Even once default is entered, you will have to set the matter for a "default hearing", at which the Judge will make certain the terms of the proposed judgment you are requesting provides for a fair and equitable distribution of the marital estate. That hearing will be set approximately a month away, and you will still have to provide your spouse notice of the hearing. Often, your spouse will show up and oppose entry of a default judgment and the Court will give him or her additional time within which to file a Response and appear in the matter.

This does not mean requesting entry of default is never appropriate. But it should be reserved for situations in which it is clear your spouse has no interest in participating in the dissolution proceedings. It is not intended as punishment for failing to strictly comply with time requirements.

Rather than immediately requesting entry of default against a spouse that does not promptly file a Response, consider filing a motion for custody, support, or other matter that is not likely to be ignored. Often the filing of such a motion will compel a reluctant spouse to get off the couch, because failure to do so will result in orders being granted in your favor.

On the other hand, there are times when requesting entry of default is entirely appropriate. If your spouse is incarcerated they may not be able to file a Response or appear. If there are no significant marital assets, a spouse may not care to appear and contest the proceeding. I have even had situations where a spouse wouldn't come near the courthouse because they had warrants for their arrest and were afraid the deputy sheriff bailiff might check for criminal warrants (they do, and they will be taken out of the courtroom in handcuffs after the hearing).


So, while many people think the opposing party's failure to timely file a Response results in victory, it just isn't the case. Besides, there are no victories in family law.