Your beloved of many years leaves you, wants to get his or her equity from the house you co-own. (Absolutely everything is 50/50, so don’t ask about down payments or anything.) You wish to remain in the house, potentially for the rest of your life, you love it, so you absolutely do not want to sell. Your ex would, obviously, sell in a heartbeat.
The simple answer would appear to be that you buy your ex’s half for the amount of their 50% equity, based on appraised value minus mortgages.
So far so good.
Here’s the big question: do you also factor in what commissions and costs would be if the house were sold to a third party, or not?
Here’s the simplistic arguments for both sides:
No, you don’t, because you are planning to live their forever and willnever have to pay such costs in a sale yourself, not to mention the fact that you are probably going to see the house appreciate over time so if you ever do sell, you will gain much more than these costs will cost you now.
Yes, you do, because your ex is threatening to sue you to force you to sell if you try to make him/her pay those costs, but if htey do that they will pay those costs plus the costs of the lawsuit! Not to mention the fact that you are strapped and may not be able to hold on to the house anyway, and it will be even harder if you have to take on so much more debt to pay the ex, which may find you in six months having to sell and at that point the market may have fallen AND you will have to pay the commissions for BOTH of you that the ex didn’t weaseled out of with you!
Any other arguments?
What’s your vote?
(Any data or real-world examples would be welcome, especially in California)
I went through this a couple of years ago in California.
The simple answer is that the two of you can come to any agreement that you want. He can sell out his half for $1 as far as the law is concerned and as long as there is no coercion, the courts don’t care.
If you force the courts or a mediator to decide, they will use something called the Moore-Marsden calculation. This is standard in California. The calculation can get complicated if one person put down more or all of the down payment or made more of the mortgage payments. In your situation, it’s easy. You each get half of the equity (value of house less payoff amount of mortgage.) I know that you don’t like it, but that’s how it is.
If one person can’t come up their half, a sale will be forced. Yes, then you’ll both get less money but that’s how it goes. You can try to convince your ex to agree to something less but they won’t have to do that.
Advantages to keeping the house: You get to keep the Prop. 13 basis. This is huge. My ex has a new house that is worth 20% less than mine. She pays over $8000 a year in property tax and I pay about $2500. Also, you don’t have to move. If you hate moving as much as I do, this is also huge.
Advantage to getting bought out: You don’t have to pay capital gains on the money. That’s right, if the person who keeps the house sells it, they have to pay capital gains on the entire amount of the gain. This becomes a moot point if you use the money to buy a new house in less than eighteen months or are over 62.5 years old because then you don’t pay capital gains on the sale of a primary residence.
Advantage to selling and splitting the profit: None. You each get less and you have to pay taxes on the money if you don’t get a new place. It’s worth it just to buy a double wide to shelter the money from taxes.
Note: I am not a lawyer or a CPA. Consult with someone who really knows what the fuck they are talking about.
I googled the hell outta that, and while I respect your experience and contribution, I think you are mistaken. That seems to apply to marriage, over and over and over again, and seems to apply very much to situations of inequality in ownership or issues of ownership before the marriage.
I know that you and your ex weren’t married but I don’t see why it would be different in this case. Why do you think the calculation would be different if two spouses own the asset or if two non-spouses did?
There really isn’t a definitive answer because the two of you can come to any agreement that you want. If you can’t come to an agreement on what he should pay you, any mediator will rely on Moore-Marsden or say that the asset should be sold and any profits split. What else is there to do? You can appeal to logic or reason with your ex but it sounds like he wants no part of that.
My real-world response to this was settle for half the equity minus the expected costs of selling the house.
As we had owned our house for all of six months, this was basically what we paid for the house house, minus the remaining cost of the loan minus the expected realtor fees of 6% all divided by two. This worked out to her paying me $1000.
Basically we imagined we sold the house and split the profits. This was Kansas not California.
I did force her to refinance the house in her name, removing my name. The quit-claim deed that is the official I-am-divorcing response to to handling property neatly removed my rights to the property but no way removed my responsibility to the house lender. Make sure you manage the “what if somebody defaults” situation.
I told her if she wanted the house, she’d have to refinance it in her name and pay me $1000. I didn’t to worry that 10 years after the divorce she’d default on her house payment at the lender would be chasing me down for the amount. She did as I asked.
Look at it this way, what does your ex benefit from you paying him half the sale price minus commission? If he gets the same amount why wouldn’t he want to force the sale?
You aren’t going to find a definitive answer unless you talk to an attorney. You and your partner are free to come up with any arrangement you want. If you can’t agree, the court will come up with one for you but nobody will be very happy with it.
One question. If you are indeed strapped, why hold on to the house, especially if you don’t think, you’ll be able to afford it six months from now?
He could be feeling vindictive, he could be feeling nasty. If he thinks he is being screwed on the deal somehow, he may very well decide to force a sale. I’ve seen stupider. It gets worse the more right he thinks he is, at least from my perspective. I’ve seen cases go to trial over amounts that were smaller than the attorney’s fees spent by each party where they had no hope of ever going to trial.
I do recommend you speak to an attorney to at least find out what your rights are in this matter. That way when you go to the negotiating table with your ex, you’ll have a better picture of what you can and can’t reasonably expect to happen.
You may also want to talk to an attorney just to see what procedural steps you and he should take. In my experience, it will be worth it to avoid headaches in the future.
Note- I don’t know you and I don’t know him. My answer is based from general observations of things and people from the last few years.
Why would you be paying a sales commission? I’m lost here. You aren’t going to be listing the house for sale, you don’t need fliers, and open houses and all that crap.
Essentially you are refiing the house, and taking your SO off the deed.
Depending on just how willing you are to work the details you can probably do this all yourself with the help of an escrow company.
I would talk to your lender, and ask just what is needed to do this transaction. I am guessing that if you stay with the same lender they will waive the termite, appraisal, and maybe the loan origination fees. You will probably still need a tittle search.
My feeling is that the fees should be split 50/50, but if it keeps your ass out of court, it might be worth it to suck it up and eat all of them.