Certified Family Law Specialist
1011 West Taylor Street
San Jose, CA 95126
Deferring the Sale of the Family Residence
Attorneys, Mediators and Collaborators are considering delay in the division of the family residence as an important option for divorcing couples. Children are able to remain in the same home, neighborhood, schools and church, and are impacted by the divorce less severely than if they are uprooted from these familiar attachments. Drastic economic circumstances in the real estate and job markets have created an inherent interest in deferring the sale of the family residence independent of the obligation of support.
Couples are looking at retaining ownership of their family residence, so that it can hopefully be sold for a profit in the future, and to stabilize the lives of their children. The parties are considering negotiating a reduction in the amount of the mortgage with the bank to reflect the fair market value of the residence, and to avoid a foreclosure proceeding. Or, one of the parties may need time to acquire the ability to purchase the other party’s community interest in the home, and the parties agree to make an arrangement to accomplish this goal, and to avoid the costs of a listed sale, to eliminate a capital gains tax, and to allow one party to continue to be a real estate owner when it may otherwise be problematic for that party to qualify to purchase a new residence.
The immediate sale of the family residence may be deferred by the court, when requested by a party, so that the custodial parent and minor children could continue to live in the family residence as part of a child support order. The parents own the home as tenants in common until there is no need for child support and the home can be sold and the proceeds divided between them. Marriage of Boseman (1973) 31 CA3d 372, 107 CR 232; Marriage of Duke (1980) 101 CA3d 152, 161 CR 444., and Marriage of Braud (1996) 45 CA 4th 797, 811, 53 CR2d 179, 187, footnote 14 traces development of FC Section 3800 et seq.
Family Code Section 3800 governs the deferred sale of a family home. For purposes of Section 3800 et seq., a “deferred sale of home order” means an order that “temporarily delays the sale and awards the temporary exclusive use and possession of the family home to a custodial parent of a minor child or child for whom support is authorized…, whether or not the custodial parent has sole or joint custody, in order to minimize the adverse impact of dissolution of marriage or legal separation of the parties on the welfare of the child.” (Family Code Section 3800(b). Hogoboom and King, Cal. Prac. Guide: Family Law (The Rutter Group 2009) 6:543.
A party must request a deferred sale of the family residence. (FC Section 3801(a). The character of the family home which qualifies for application of a deferred sale of home order can be a community property asset, mixed asset, or even the separate property of the non-resident or out-spouse (party living out of the family home), who is the child support obligor.
The statutory scheme does not expressly state deferred sale of home orders are made for a child support purpose. However, Section 3800 et seq. is placed in Division 9 of the Family Code dealing with “support.” The “statewide uniform child support guideline” (Family Code Section 4050 et seq.) itself brings deferred sale of home orders into the child support equation, i.e., the formula amount of support, may in the court’s discretion, be adjusted downward to the extent the rental value attributable to the non-occupant spouse’s (support obligor’s) ownership interest exceeds the mortgage payments, homeowner’s insurance and property taxes. Hogoboom and King, Cal. Prac.Guide: Family Law (The Rutter Group) 6:546.
When a party requests a deferred sale of home order, the court must determine whether “it is economically feasible” to maintain the (1) house payments (mortgage, property taxes, and insurance) during the deferred sale period, and (2) the ability of the resident spouse (in-spouse) to maintain and preserve the condition of the home comparable to that at the time of trial. The Code requires an “economic feasibility” determination, the intent is (a) to “avoid the likelihood of possible defaults in secured note payments (mortgages, equity lines and other liens), and a resulting foreclosure;” (b) to “avoid inadequate insurance coverage;” (c) to prevent deterioration in the condition of the home; and (d) to “prevent any other circumstances which would jeopardize both parents’ equity in the home.” Family Code Section 3801(a), see Marriage of Braud, supra.
After the threshold economic factors are satisfied, then the court retains broad discretion to grant or deny the order. A deferred sale is never mandatory. There are 10 statutory factors, which the court is required to consider and weigh. Marriage of Stallworth (1987) 192 CA3d 742, 746-750, 237 CR 829, 831-834, Marriage of Braud, supra, and Family Code Section 3800 et seq., Hogoboom and King, Cal. Prac. Guide: Family Law (2009) 6:551-585. Family Code Sections 3802(b)(1) – 3802(b)(10)
First, the length of time the child has resided in the home.
Second, the child’s placement or grade in school, and how much longer would the child be likely to attend a neighborhood school.
Third, the accessibility and convenience of the home to the child’s school, other facilities used by the child, and available to the child, including child-care.
Fourth, whether the home has been adapted or modified to accommodate any physical disabilities of a child or a resident parent in a manner such that a change in residence may adversely affect the ability of the resident parent to meet the needs of the child.
Fifth, the emotional detriment to the child associated with a change in residence.
Sixth, the extent to which the location of the family residence permits the resident parent to continue his or her employment.
Seventh, the financial ability of each parent to obtain suitable housing should the family residence be immediately sold and the proceeds divided.
Eighth, determining the tax consequences to the parents, and the requirement for a reservation of jurisdiction for the maintenance of the home and tax consequences.
Ninth, determining the economic detriment to the nonresident parent in the event of a deferred sale of home order. A deferred sale might interfere both with the out-spouse’s ability to acquire suitable housing for “frequent and continuing” contact with the children (FC Section 3020) and with the ability to “get on with living his or her life in a post divorce world. Marriage of Stallworth, supra, 192 CA3d at 748,749, 237 CR2d at 833. Whether to award an off-set against the child support liability for out spouse’s loss of use of his or her separate property family residence. Marriage of Braud, 45 CA4th at 815, 53 CR2d at 189. The court could compensate the out-spouse by making a condition for the deferred sale on the parties’ obtaining a loan with which the out-spouse could cash out all or part of his or her community interest with a view to overall economic feasibility for each party. Marriage of Braud, supra, footnote 18, dictum.
Tenth, any other factors the court deems just and equitable. Marriage of Braud, supra. Footnote 15. For example, the out-spouse’s separate property interest in the home may be a just and equitable factor to consider in deferring the owner’s occupancy/sale of the home or in limiting the term for the deferred occupancy/sale.
The order deferring the sale of the family home must specify its duration. FC Section 3803.
This determination is akin to the weighing process on the issue of whether to grant a deferred sale of home order, and, generally, not when the child reaches the age of 18 years! When the children are going to naturally be changing schools should be considered. Marriage of Stallworth, supra, 192 CA3d at 748, 237 CR at 833, Marriage of Braud, supra, 45 CA4th at 816, 53 CR2d at 190, affirmed an order deferring the sale of the home for 12 years, until the youngest child reached age 18. A deferred sale of home order may also be made for adult children owed a support obligation (…”or child for whom support is authorized,” Family Code Section 3800(b)).
The court has discretion to modify or terminate a deferred sale of home order when circumstances change, unless the parties have otherwise agreed in writing. FC Section 3807. Should the resident party remarry, or there is a change in circumstances affecting the FC Sections 3801 or 3802 determinations upon which the order is based or affecting the economic status of the parties or the children on which the order is based, there is a rebuttable presumption affecting the burden of proof that further deferral of the sale of the family residence is no longer an equitable method of minimizing the impact of dissolution or legal separation on the children, then the court can require an immediate sale and division of the proceeds. Family Code Section 3808. Consequently, when the parties actually desire a fixed deferral period, they must document that intent in a written agreement, to avoid the court’s discretion to vary the term.
Not governed by FC Section 3800 et seq. would be a deferred sale of the family residence for property division purposes. A deferred sale of the parties’ community property home strictly for a property division purpose is not a deferred sale of home order governed by Section 3800 et seq. of the Family Code. Marriage of Stallworth, supra, 192 CA3d 742, 748, 237 CR 829,833 provides that where “economic circumstances warrant,” courts have discretion to delay the division of an asset, giving one party interim exclusive use until it can feasibly be sold and the proceeds divided.
More recently, economic circumstances have created an interest in deferring the sale of the family residence independent of the obligation of support. The deferral of the sale of the family residence may be an independent integral part of the division of the community property.
Attorneys, Mediators, Collaborators and Couples are looking at protecting their investment in the family residence as well as considering their children’s welfare. The statutory scheme does not preclude deferred sale orders on whatever terms and conditions are stipulated to by the parties. The deferred sale of home order can be a significant negotiating point. Marriage of Braud, supra, 45 CA4th at 816, 53 CR2d at 190, footnote 18. Couples are looking at retaining ownership of their family residence, so that it can hopefully be sold for a profit in the future, and at the same time to stabilize the lives of their children. The parties are considering negotiating a reduction in the amount of the mortgage with the bank to reflect the fair market value of the residence, and to avoid a foreclosure proceeding. Or, one of the parties may need time to acquire the ability to purchase the other party’s community interest in the home, and the parties agree to make an arrangement to accomplish this goal, and to avoid the costs of a listed sale, to eliminate a capital gains tax, and to allow one party to continue to be a real estate owner when it may otherwise be problematic for that party to qualify to purchase a new residence.
When the parties agree to consider a deferred division of their family residence, they should review and consider the following:
Under current tax law, the out-spouse can continue to consider the deferral of
$250,000 of gain on the family residence so long as this residence continues to be
the primary residence for the out-spouse, and in spite of the exclusive possession
of the family residence by the in-spouse. This is a limitation to be considered by
the out-spouse. He or she is unable to own another primary residence, until after
the sale of this family residence to preserve the ability of the out-spouse to apply
the $250,000 exclusion against gain on the sale of the family residence. For
purposes of the IRS Section 121 exclusion, the out-spouse is treated as using the
property as his or her principal residence during any period of ownership that the
other spouse is granted use of the property under a divorce or separation
instrument. IRC Section 121(d)(3)(B)
If the monthly fair rental value is greater than the monthly PITI payment, then
the amount equal to one-half of the difference could be added to support or
deferred and reimbursed out of escrow on sale or as part of the calculation for a
buy-out formula, or as a deduction to the monthly support. See Family Code
Section 3806, Marriage of Stallworth, supra, 192 CA3d at 749, 237 CR at 834.
Whether to grant a net fair rental value offset against child support lies within the
discretion of the court. Family Code Section 4057(b)(2).
Marital/Mediated Settlement Agreement is signed subject to normal wear and tear.
The parties may consider hiring someone for the maintenance of the landscaping
or pool. The Out-spouse may be on a defined schedule to provide some
maintenance service at the family residence that had been provided in the past, and
is desired by the parties to continue until the home is divided. The parties may
wish to factor the cost of these services in the support analysis, or as a
reimbursement to be paid out of escrow on sale or as part of the buy-out formula
calculation. The parties may elect to reserve jurisdiction on the issue of
maintenance. This is mandatory under Family Code Section 3809 when the court
is requested to make a deferred sale of home order.
defined between the parties. For example, the In-spouse will take care of all
repairs and maintenance items that cost less than $200, and the parties shall share
equally the cost of repairs and maintenance above $200 by mutual agreement. If
one spouse is financially unable to contribute to the repair and maintenance costs
as required, then the other spouse shall pay and be reimbursed out the escrow sales
proceeds, or as otherwise decided by the parties, or as a factor in the buy-out
formula, so that the residence can be maintained and repaired when required.
parties should consider insurance, or become aware of the availability and cost of
earthquake coverage to protect the community equity in the home. The cost for
this protection should be considered as part of the overall support scheme, and as a
potential expense to be shared by the parties, or as a payment to be reimbursed on
sale or buy-out.
decide how to treat that rent income by mutual agreement. The parties may wish
to preclude the ability to rent a portion of the home, unless by mutual agreement as
to the identity of the renter, amount of rent, and how to divide the rent income, and
disclose the rent income for annual income tax filing.
The collapse of the real estate market and economy is forcing divorcing couples to consider a deferred sale of their family residence. A review of the considerations provided in this article may alleviate the unnecessary loss of the family residence and promote a successful division of this community asset.
Stanley L. Bartelmie, Attorney-Mediator, CFLS, San Jose, California