Dear Big Move,
I live in California.
I bought an investment property in California with my sister. My aunt gifted us the money for the down payment. We weren’t in a position to qualify for a loan in the beginning, so my sister and her husband were on the loan. The three of us were all on the title.
In the beginning, my sister was paying the mortgage for the first few months. After that, I was paying all mortgages and property taxes. All rental income was deposited into my bank account, but they claimed the property on their taxes. We also did renovations and remodels throughout the years. I was paying for all expenses, except for three times my sister used their shared bank account and wrote checks for the workers.
Now, my sister and her husband are going through divorce and it seems like her soon-to-be-ex has claimed interest in this property.
Can he do that, and how much can he get from this?
A Worried Homeowner
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In response to your first question, the unfortunate answer is yes, your soon-to-be-ex-brother-in-law can claim interest in the property.
If your sister and her husband had bought the home after they got married, the home will be considered property of both spouses, under California law. California is one of nine community-property states in the U.S., which means assets acquired during a marriage belong to both parties. Their 50% share in the home they co-own with you would likely be divided equally between them.
But since they are still in the process of getting divorced, the split can vary. They can negotiate the terms of the division with their lawyers, and see if they want to split 50/50, or find a different way to be compensated.
A ‘lucky’ outcome
Erin Levine, a California-based divorce lawyer and founder of Hello Divorce, a venture-backed justice tech company, offered three paths. Again, this assumes your sister’s name is on the deed alongside your own,
The “lucky outcome” would be that your brother-in-law relinquishes his ownership in exchange for reimbursement, Levin told MarketWatch, equal to 50% of the funds he and sister contributed towards the mortgage and remodeling. “You might want to deduct for the tax benefits they received over the years, but offering the full amount might be wise — it’s a relatively straightforward resolution,” Levine said. But do note that “he would still be on the title and mortgage,” she added, so you would need to take steps such as refinancing to remove him from the loan.
Also consider the fact that the ex and his attorney may be using the threat of claiming interest in the property to negotiate agreement on other issues, financial or otherwise, Pam Friedman, a certified divorce financial analyst and managing director at Robertson Stephens Wealth Management, told MarketWatch.
The “more probable scenario,” however, would be that you would go through a professional mediation, Levine said, since there is no written agreement about the property.
You will assert your right to own one-half of the property, but the other half will be split between your sister and the ex. Your sister may even get a bigger share than the ex, Levine said, assuming you have evidence about the down payment from your aunt. “Her significant financial contributions might also influence the division of ownership or proceeds,” Levine said.
A worst-case scenario
But be prepared for the worst-case scenario. “It’s possible that this issue could be litigated,” Levine said. In this situation, it’s up to the court to review all the documents and testimony to decide how the property should be divided. “The unfortunate thing about litigation is that aside from it being time consuming, inconvenient and risky — lawyers are expensive and you want a good one when you’re litigating something so nuanced and technical,” she said.
You also said that renovations and remodeling work was carried out throughout the years — if they were done when the couple was married, and increased the value of the property, this could be considered marital property.
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