What happens to the vacation home in a California divorce?

From our offices in Antioch and Walnut Creek, we represent people facing divorce in the East Bay. Many of our clients are of substantial means, so questions about how property will be divided can be significant.

What happens to a vacation property or second home in divorce? East Bay residents may have vacation homes in Tahoe, Truckee, Placerville, Palm Springs, Napa or Sonoma Counties, along our Pacific Coast or even out of state or abroad.

Property division by agreement or in court

From a practical perspective, many divorcing California couples negotiate marital settlement agreements in which they decide themselves how to divide their money, personal property, real estate, investments and debts between them. These negotiations are often facilitated by and through their respective lawyers. The final agreement is then submitted for approval by the judge.

Understanding what a judge is likely to do should asset division issues reach him or her if the couple cannot decide can provide important perspective in negotiation.

Community, quasi-community, separate and mixed property

California is one of a handful of mostly western community property states. Community property is any property or money earned or acquired by either spouse or by them together during the marriage (or domestic partnership), unless it is inherited by or gifted to either of them as individuals. (On the flip side, community debt can be taken on by either or both during marriage.) Both community property and community debt are generally divided equally in divorce.

Property acquired outside California that would have been community property in California is called quasi-community property and is treated as community property in California divorce.

Separate property is anything brought into the marriage by either spouse from before the union as well as anything either one of them inherits or receives as a gift. Anything acquired after a married couple separates but before divorce is also separate. Separate property remains the property of the owner at divorce.

Characterizing property as community or separate is not always a clear or easy question and may require tracing the origin of funds used to purchase an asset. For example, if a vehicle was purchased during the marriage using cash withdrawn from a bank account containing money brought by one spouse into the marriage, because the funds were separate property, the automobile would also be the separate property of that spouse.

It is tricky when separate and community funds are comingled within one asset, which then becomes mixed property. For example, if one spouse owned a vacation home before the marriage, it would remain separate property if it is kept during the marriage. However, if during marriage community earnings of one or both spouses are used to make mortgage payments or capital improvements, a portion of the value of the second home then becomes community property subject to division.

Marital agreements can change the nature of property

If in a valid premarital or postmarital agreement the parties contracted to change the nature of property during marriage or at divorce, that characterization is normally binding for property division purposes.

What about the second home?

These issues can be extremely complicated and it is important to involve an experienced lawyer as early as possible. When a second home is at issue in a property division negotiation, several issues arise:

• Is the property separate, community, quasi-community or mixed property?
• Does either party want to keep it? Does it have meaning or value to either spouse? Are there children or extended family who use it and is that important?
• Will one spouse buy out the other’s interest; if one gets the second home, will the other get some other real estate that is equivalent; or will it be sold and the proceeds divided? Of course the answers to these questions depend too on the property’s classification.
• What is the proper valuation of the property considering the local market, appreciation or depreciation? Does rental value impact the value? Valuation normally requires the opinion of an appraiser familiar with similar properties in the relevant geographical market.
• What tax ramifications are there for transfer or sale of the property?

Consult one of the family law attorneys at the Law Offices of David M. Lederman with questions about disposition of a second home in divorce.