At DP Legal Solutions, we assist couples with uncontested divorce, which means they’re able to reach agreement about division of property and a parenting plan.
California is a community property state: An equal division of property
California is a community property state, so all property accumulated during marriage–including debt—is typically divided evenly when a couple gets divorced. When couples get ready to divide property, they need to look at their respective cash and savings accounts; investments; stock portfolios; 401k accounts, pension plans or other retirement accounts; and real property—the family home and any vacation property they may own.
The wife should get the family home—or should she?
Many couples, when dividing their property, think that the family home with its significant amount of equity is a fair deal for the wife. Since the wife often has primary custody of the children, this often seems to make sense—the kids’ lives will be uninterrupted. They’ll remain in their same neighborhood and attend the same school. But as the following case study/cautionary tale illustrates, that is not always the case.
A look at David and Susan, 45, with two children
David and Susan own a home worth $1.25M. David makes $200K/year and Susan has a part-time job, earning $30/year. Their retirement plans have a total of $275,000 in value. They have cash and investments (stocks) worth $130,000.
David proposes that Susan keep the house, half the investments and $50,000 of David’s retirement account. David will pay $2,000/month alimony for three years and $3,500/month in child support. This appeared to be a fair and equitable settlement, and initially, Susan was agreeable to the distribution.
However, she knew that her life was going to change dramatically with the divorce. She no longer had the luxury of working the little part-time, low-paying job that she loved. It had been many years since she had been actively involved in the workforce, and the technology industry in which she had worked had long ago left her behind. She would need to retrain, find not just a job but a career, and start earning enough money to help support herself and her children once David’s alimony ran out.
Keeping the family home would result in financial ruin
After consulting a financial adviser, Susan realized that keeping the house would be financially devastating. The large mortgage payment, utilities and maintenance costs would keep her monthly living expenses so high that even with alimony and child support she would still be spending more than she would be taking in every month. Susan understood that what she needed to do was sell the house, get out from under the huge mortgage payment and buy a home she could afford.
This story illustrates the wisdom of being dispassionate about the family home. This is difficult for many people because the home represents so much more than a roof over our heads. It’s symbolic of happier times and may also represent status. Leaving the family home may mean leaving wonderful neighbors, and it’s hard to walk away from friendships and community.
But as difficult as it may be, it’s important to think of a house as just another asset. Owning and maintaining a home is expensive–here in the Bay Area, it generally takes two incomes. Susan understood that she needed to make lifestyle changes and reduce spending. She was facing a lot of uncertainty as she navigated her new life as a single mother, and finding a new career was a looming priority. It was time to put emotions and sentiment aside and think about the practical realities of her new life.