What You Need To Understand About Your Mortgage And Property Taxes If You’re Getting Divorced In California

Even for high-asset couples in California, the practical side of divorce catches many people by surprise. Divorcing spouses are often so concerned with getting an arrangement that provides what they deserve that they fail to consider whether the details are practical. This is particularly true with issues involving real estate.

Problems with mortgages and property taxes can turn a seemingly beneficial settlement into a nightmare. It is important to work with an attorney who is watching out for your interests on the practical side and paying attention to details as well as the overall outcome.

You’ll Need a Strategic Buyout Plan

If you want to keep the family home or a favorite vacation property and that real estate is not specifically protected as your separate property, then your spouse is entitled to a portion of the value and you will need to “buy out” their interest in some way. Regardless of the value of the assets you hold, coming up with a plan to free up and transfer assets requires careful planning to avoid tax liability and other unwelcome consequences.

In many high-conflict, high-asset divorce cases, however, each party can get so caught up in fighting over who gets to keep the property that they are unable to reach an agreement until forced to compromise or until a judge hands down a ruling. In either situation, the party who “wins” by getting the property often does not have a plan prepared for how they will buy out the other spouse’s interest.

When you prioritize your goals at the start of the process and work with your attorney and financial advisor to develop plans to be used to buy out your spouse’s interests in the property you want to keep, then you avoid putting yourself in a difficult position later. In addition, in the process of developing this plan, you will see what you need to give up to be able to keep the real estate you want. This can either reaffirm your determination and confidence or lead you to see that maybe there are other options that would be a better choice.

Mortgage Requirements Can Be Tough to Meet Even for High-Asset Individuals

In many cases, the spouse keeping a home or vacation property will need to qualify for a new mortgage to cover the costs. Individuals of high-net-worth often assume they will have no trouble qualifying for a mortgage, but lenders have become increasingly demanding. They will ask to see evidence of consistent income over a 6-12 month period and underwriters will scrutinize details closely. If the loan applicant is relying on alimony as a source of income and a payment has ever been missed or shorted, the loan application could be denied. The lender may require a copy of an agreement between spouses and may need the judge’s signature as well.

It takes considerable time to provide all the documentation requested by the mortgage company. If the divorce judgment requires one spouse to obtain a new mortgage within a short timeframe, it may simply not be possible. It is important to keep the realities of the mortgage process in mind when establishing arrangements for real estate.

California Property Tax Issues Can Have a Tremendous Impact on Divorcing Couples

Provisions in California property tax laws offer relief from high property tax rates in certain situations, particularly for individuals over the age of 55. For instance, Propositions 60 and 90 allow couples who are downsizing to a different home to carry their low property tax rate with them to the new home. However, if that couple divorces, only one of them can use the protected transfer provision. The other spouse will be stuck paying the current property tax rate on the new property, which may amount to thousands of dollars more each year in tax bills.

It is important to consider in advance how these and other tax issues will be addressed for marital property. The tax benefit can only be claimed by one spouse, but the other can receive an equivalent value elsewhere in the marriage settlement. If your attorney does not bring up this issue, make sure you do, or you could lose out considerably in the future.

Work with a High-Asset Divorce Team That is Prepared to Address the Critical Details in California

Divorce is an overwhelming process, and when you are caught up in the effort of disentangling your finances and building a new life, it is impossible to anticipate all the potential difficulties and keep track of all the details. This makes it crucial to work with divorce attorneys who understand the multitude of issues that can impact a high-net-worth divorce and who are willing to comb through the details with you to develop the right plans to enable you to emerge from the process poised for the best future.

At Holstrom, Block & Parke, APLC, our Certified Family Law Specialists and associates strategize to formulate the right plans to protect you now and in the days to come. Schedule a consultation with our California divorce team today by calling 855-426-9111 or contact us online to learn more about the ways we can assist.

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