When getting a divorce, how does a house with an underwater mortgage count towards dividing assets?
October 11, 2009 2:16 PM   Subscribe

You're not my lawyer, but when getting a divorce, how does a house with an underwater mortgage count toward dividing assets?

My spouse and I are getting divorced after six years of marriage, and we're in California, if that matters. We purchased the house shortly before getting married. We paid $265,000 and borrowed $28,000 from the spouse's family for closing costs and the down payment, so the loan amount was about $237,000.

Six years later, the house is now worth somewhere between $190,000 and $200,000. We have repaid around $9,000 of the loan from the spouse's family. We owe something like $205,000 to the bank for the house.

Let's say we have $100,000 in the bank, combined. My spouse will be keeping the house. How does the underwater mortgage and loan to the spouse's family affect the dividing of assets?

Is it as simple as assets ($100,000 in cash) minus liabilities (-$15,000 underwater mortgage, -$20,000 to the spouse's family) divided by two? This would leave me (the non-home-keeper) with $32,500.

Secondary questions - my spouse will be keeping most of the furniture and household items and the more valuable vehicle. Are these factored into the assets in calculating where the cash is divided? Is retirement account value also factored in?

I know that a lawyer can better answer these questions, but I'd like to have an idea of the answers, and Metafilter isn't going to cost me $250 an hour. Thanks.
posted by cnc to Human Relations (11 answers total) 1 user marked this as a favorite
Adding: We have no credit card, vehicle or other debt, aside from the mortgage on the house.
posted by cnc at 2:18 PM on October 11, 2009

I'm not a lawyer, and this is anecdotal but...

A friend of mine got divorced, he ended up having to pay her $10,000 cash out of the $15K in the bank and she stuck him with the underwater house (about $20,000 under at the time, now closer to 100,000). They each kept getting appraisals that were +/- 10K off from the price at the time. Plus she got the paid off car, zero credit card debt, etc. He on the other hand, has 20K in CC debt, an underwater truck, etc. His income was twice of hers.

So part of the equation is how good your lawyer is vs. hers, and if she is really trying to soak you.
posted by SirOmega at 2:28 PM on October 11, 2009

(Or substitute he in my comment if appropriate)
posted by SirOmega at 2:29 PM on October 11, 2009

I might be easier to think of the house and mortgage as separate items.
Assets = $100k + $190K = $290 + value of major joint household items
Liabilities = $205K + $20k = $245
If she keeps both the house and the mortgage + loan to family, that gives her a net of (+190-245=-$55k).
If depreciated value of the household items is, say $5k, that would put her at -$50k. Give her the first $50k of savings, and split the rest so you end up with $25k cash, no debt, no other assets, she has the house, the mortgage and the loan, the majority of the household furnishings and $75k Cash.

First, this assumes that you are both capable of earning roughly equal salaries (if she put her career on hold and worked retail to put you through med school, this changes) and that there are no children involved.

Second, you would need a good lawyer to make sure that if she defaults on the mortgage, the bank cannot come after you. If you are liable for half the mortgage, even though you moved out, that would completely change the calculations.
posted by metahawk at 3:02 PM on October 11, 2009

>Second, you would need a good lawyer to make sure that if she defaults on the mortgage, the bank cannot come after you.

A good lawyer would make it clear that that ain't going to happen.
posted by megatherium at 5:08 PM on October 11, 2009

Thanks for the answers so far. To clarify a couple of points that have come up - my spouse has made the lion's share of the income - on the order of 2.5 to three times my yearly salary over the last several years. I have no interest in extracting spousal support. 90% of the liquid assets are in the spouse's bank account, which is why I ask. I want an idea of how much I might end up with when it's all said and done.
posted by cnc at 6:18 PM on October 11, 2009

Megatherium: Even the world's best lawyer can't take somebody off a note that they already signed. The bank is not a party to the divorce. The divorce court can only order that one spouse be responsible for the note. If that spouse doesn't pay the bank is well within its rights to go after both of them. The remedy for the spouse that was not assigned the note in the divorce but has been forced to pay (by the bank's action) anyway is a contempt action or other enforcement mechanism provided by the applicable state's divorce code. Bottom line is that, in this economy, divorce lawyers now spend as much time trying to keep their client from getting the house as they did trying to get their client the house before the market tanked.
posted by webhund at 7:07 PM on October 11, 2009 [1 favorite]

Megatherium: as webhund says, a divorce decree cannot release you from liability on a note you signed, only the lender can. This cannot be resolved without professional help.
posted by crush-onastick at 7:19 PM on October 11, 2009

I don't understand what makes you think that anyone other than your own attorney will answer this question correctly. Any competent attorney who practices family law in California won't answer your question because you aren't their client and they don't want to get sued for giving you incomplete advice. So what you're going to get from AskMe is a range of accurate and inaccurate answers. Problem is, you won't know which is which.
posted by Happydaz at 11:07 PM on October 11, 2009

During a divorce, both assets ($ in bank) and liabilities (loans) will be considered. Furniture and cars are assets. You should be sure to get the house loan refi-ed, so you are not held responsible for payments.

It's not unreasonable to ask for a greater share of assets, since he has greater earning power. You sound very sensible. You'll save a lot in legal costs if you continue to minimize the drama.
posted by theora55 at 5:51 AM on October 12, 2009

Just want to say thanks for the information.

@Happydaz - I'm asking people as much (or more) for their personal experiences in going through this process as I am for legal advice. The answers here have actually been consistent and helpful. Unfortunately, my financial position dictates that I get as much information as possible for free.
posted by cnc at 9:56 AM on October 13, 2009

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