Disclaimer: This article does not constitute legal advice. If you have any questions about your individual situation it is best to seek the advice of an experienced legal professional.
If you’re getting a California divorce and you own multiple homes, your property division needs to take into careful consideration the tax impacts of dividing your real estate and how to value your property under current market conditions. In addition, with interest rate hikes, the demand for property is slowing across the US meaning sellers no longer have the leverage they once had.
The following questions can help you assess the value of your property in your divorce mediation:
What are the Tax Impacts of a Primary Residence Compared to a Second Home?
There is a big difference between the way your primary residence and second homes are treated in your divorce. If you have lived in your home for two years you can get a capital gains tax exemption of $250,000 per person. This does not apply to vacation homes or second homes. When you own multiple homes you often have to make a decision about which ones you want to remain living in or sell. The tax impacts of a second home will be greater than a primary residence.
Should You Sell or Keep the Vacation Property or Properties?
There are many ways to work around the tax impacts of second homes in divorce. If one of you can move into a second home you may be able to defer capital gains tax until such time as you wish to sell the home. Another way to defer tax impacts is to continue renting out the properties. Your decision may depend on what other assets you have as part of your community property. If you own multiple properties but need more liquidity to fund your new lifestyle after divorce, you may want to sell one or more of your properties or trade real estate with your spouse in exchange for cash or investments. As part of this process, it’s critical that you have your real estate appraised by a neutral expert who knows the market in San Diego, San Jose or the location of your property out of state or abroad. A neutral appraiser on the divorce mediation team can value your properties and advise on how to get the best value out of these marital assets. Using a neutral appraiser as part of a California divorce mediation avoids the conflict of having different estimates.
How Do I Divide Real Estate That May Appreciate or Depreciate in Value?
The current market instability makes it a tricky time to value property in your divorce. Interest rates have risen, prices are falling and there is general uncertainty in the market. One thing to remember is that many divorces take time to settle and many assets don’t have to be sold or turned into cash until the time is right. Some spouses might agree to convert vacation homes to rental property at least part of the year, retain reduced equity in property they co-own but do not live in, wait to sell a home until market conditions are right, or simply receive more cash in exchange for a valuable home that the other spouse has chosen to live in. Some parents choose to give a home to their children who will be able to save tax on the home if it is received as inheritance.
What if the Vacation Home is Inherited Property?
If the vacation home is inherited property, you need a skilled divorce mediator with financial expertise to help you work out how to divide the value of the home. Inherited property is not technically part of the community property, but if a married couple and their family used the property, or rental income flowed back into the marriage, part of the value of the home can be considered “commingled” with the marital assets. It’s also possible that the spouse inheriting the property put their soon to be ex on the title of the property. The value of the property to the non-inheriting spouse could involve a complex calculation. It may be a percentage of the time it was used by both spouses, or its value as a marital asset may be calculated from the point at which one spouse was given title to the home, or the value of any rental income will need to be calculated if some portion or all was used as marital income.
In the case of vacation properties, you may be dealing with issues beyond money, such as emotional attachments to a home that’s been the family for years. You may also have issues of shared use, say if the property is shared by other family members part of the year. Questions about inherited real estate in divorce can be fraught and emotionally complex. Our Divorce Mediators often use tools like fair division mathematics, which help divorcing spouses put a more accurate value on an asset like inherited property or a family home.
Why Should I Use Divorce Mediation to Help Divide our Properties in Divorce?
If you can’t agree on what to do about an asset like real estate in a divorce, it’s common for a judge to simply order that you sell the properties. This is an arbitrary and often inappropriate way to deal with properties that could have been in the family for years, or where you’ve raised your kids. These arbitrary decisions could also affect a property that you have spent time and money restoring.
In divorce mediation, many more aspects of value can be considered besides the market value of the property. The timing of the sale of property can be carefully discussed, the potential for appreciation and depreciation, the work that one or both spouses put into building or restoring the property in just a few examples.
Our Services And How We Can Help
We are compassionate and highly skilled West Coat divorce mediators who work with divorcing couples with complex assets. We help people work through a diverse asset portfolio to arrive at simplicity and peace of mind. We do this by using mathematical and financial tools, as well as tools to help you understand your values and what you want from your future.
We are fully qualified Divorce Financial Professionals who offer an array of in-house services to simplify your divorce, such as built-in neutral appraisals, which will save you time and money. We are a full service divorce firm who help you handle the documentation involved in a California divorce. We aim to make the divorce process as pain-free as possible, without sacrificing thorough analysis of your financial assets and any liabilities. Please contact us to learn more about our West Coast divorce mediation services.
