Watts charges

[mwashbu]

What is the name of your state (only U.S. law)? CA

My wife and I have been separated about 30 months with the legal divorce pending. Since then, I have been living in the house and maintaining mortgage payments. We are now at the point of negotiating the financial settlement agreement. Right now it appears that she will be buying out my equity in the house and will move back in. While I think I understand the principal of Watts charges, it doesn't make logical sense to me that the >$70K I've paid toward the mortgage now "goes into her pocket". The way I'm looking at it, if both of us had for some reason moved out of the house and a third party moved in and the rent from the third party was applied to the loan, it wouldn't go entirely toward the amount my X2B has left to pay on the house. What am I missing here regarding Watts charges? Is it reasonable for me to ask for at least half of the amount I've been making toward mortgage payments, insurance, upkeep, etc? Thanks in advance.

 

[LdiJ]

What is the name of your state (only U.S. law)? CA

My wife and I have been separated about 30 months with the legal divorce pending. Since then, I have been living in the house and maintaining mortgage payments. We are now at the point of negotiating the financial settlement agreement. Right now it appears that she will be buying out my equity in the house and will move back in. While I think I understand the principal of Watts charges, it doesn't make logical sense to me that the >$70K I've paid toward the mortgage now "goes into her pocket". The way I'm looking at it, if both of us had for some reason moved out of the house and a third party moved in and the rent from the third party was applied to the loan, it wouldn't go entirely toward the amount my X2B has left to pay on the house. What am I missing here regarding Watts charges? Is it reasonable for me to ask for at least half of the amount I've been making toward mortgage payments, insurance, upkeep, etc? Thanks in advance.

Normally, the person using the home is responsible for the mortgage payments, because they have exclusive use of the home. If you had also moved out, you would have been responsible for 1/2 of the mortgage payments plus the cost of your alternate accomodation. Plus, if you had rented it out for the last 30 months you and she would have come very close to losing your capital gains exclusion.

She was paying for alternate accomodation while you had use of the home that she also owned.

There is also an argument frequently made that if she paid half of the mortgage, then you would owe her rent because you had exclusive use of her half. (this is not an argument that I subscribe to, but its frequently made).

Now, you could try to negotiate with her to accept only half if the equity that existed 30 months ago and therefore buy you out for a higher amount. However, based on today's market, its likely that you have LESS equity today than you did 30 months ago, so that's a bad argument.

Bottom line is that you were the one who had use of the home, therefore its appropriate that you were solely responsible for the mortgage, just as she will be solely responsible for any mortgage once she takes possession.

 

[mwashbu]

Actually, the housing market in my zip code has been fairly stable since the separation date.

The thing that I still can't get my mind around is that the ALL of the Watts charges/mortgage payments/equivalent rental amount is going toward her equity. Shouldn't there be some be some middle ground?

 

[mistoffolees]

The thing that I still can't get my mind around is that the ALL of the Watts charges/mortgage payments/equivalent rental amount is going toward her equity. Shouldn't there be some be some middle ground?

You can't get your mind around it because that is incorrect.

Some of the mortgage payment goes for interest. Some of it goes to equity. Some goes for taxes and insurance (if those are escrowed). PLUS, you get to deduce the interest you paid, not her.

Since you are using the house, it is only reasonable that you pay for the use of the house. In most places I've lived, the mortgage payment (minus the value of the interest deduction) is the same order of magnitude as you'd pay in rent. So if it really bothers you to consider it paying for her equity, then simply consider it as if you were paying rent.

 

[mwashbu]

This still doesn't make sense to me. Say, for the sake of argument, that I was now to write my X2B a check to cover the past 30 months of "rent" or Watts charges or whatever you want to call it. The fact still remains that I personally paid off a community debt and I should therefore be entitled to half the asset (equity) that came about as a result of those payments. Therefore, I'd "get back" half of what I paid her in rent. What's the flaw in this reasoning, given that until the time of divorce, both parties are supposed to be splitting assets and debts?

 

[mistoffolees]

This still doesn't make sense to me. Say, for the sake of argument, that I was now to write my X2B a check to cover the past 30 months of "rent" or Watts charges or whatever you want to call it. The fact still remains that I personally paid off a community debt and I should therefore be entitled to half the asset (equity) that came about as a result of those payments. Therefore, I'd "get back" half of what I paid her in rent. What's the flaw in this reasoning, given that until the time of divorce, both parties are supposed to be splitting assets and debts?

You're not listening.

The simplest flaw is that the rent you pay is not all going to equity. Only a small portion of the 'rent' goes to equity. On top of that, you got the interest and property tax deductions from the interest portion of the payments - which you would not have gotten if it were rent.

But if you don't think it's fair, you're free to say 'no' and let the judge decide (you said you're still negotiating).

 

[mwashbu]

disregard

Never mind- I figured out the flaw in logic myself.

 

[Bali Hai]

What is the name of your state (only U.S. law)? CA

My wife and I have been separated about 30 months with the legal divorce pending. Since then, I have been living in the house and maintaining mortgage payments. We are now at the point of negotiating the financial settlement agreement. Right now it appears that she will be buying out my equity in the house and will move back in. While I think I understand the principal of Watts charges, it doesn't make logical sense to me that the >$70K I've paid toward the mortgage now "goes into her pocket". The way I'm looking at it, if both of us had for some reason moved out of the house and a third party moved in and the rent from the third party was applied to the loan, it wouldn't go entirely toward the amount my X2B has left to pay on the house. What am I missing here regarding Watts charges? Is it reasonable for me to ask for at least half of the amount I've been making toward mortgage payments, insurance, upkeep, etc? Thanks in advance.

Since it appears you haven't finalized an agreement, simply refuse to accept her logic on this despite what others in this thread have written.

If I understand you correctly, your wife is interested in buying out your share of the marital home as valued 30 months ago. It's not unexpected that she would expect you to fall for this idiotic "deal".

Unless you have already agreed to a specific buyout date, I would advise that you establish a buyout date coinciding with the CLOSING of her refinaning the property at which time you would receive HALF the equity in the property.

The mortatge payments for the last thirty months were made with "marital assets" of which you are entitled to HALF. The fact that she moved out and had to pay rent somewhere else with "marital assets" is HER porblem.

 

[mwashbu]

We have not finalized an agreement but I have verbally offered to let her buy me out (both in person and in front of our mediator). She has applied for a loan and should get financing this month.

The home was originally appraised a couple months ago (not at the time of separation 30 months ago) by someone the mediator recommended. I was reasonably satisfied with that appraisal but then her loan company did their own appraisal and came in with a value $50K lower than the original. We'll discuss today with the mediator how to handle that situation.

It gets worse. I have an hour drive to and from work and would like to move slightly closer. The logistics of me getting our 2 kids to and from daycare (where they stay before and after school) with me even further away could make a bad driving situation even worse. I don't think there's any way to compensate me for the disparity in commutes or the fact that I've made clear career sacrifices so that that she could establish and maintain her academic career.

This feels like a no-win situation.

 

[LdiJ]

We have not finalized an agreement but I have verbally offered to let her buy me out (both in person and in front of our mediator). She has applied for a loan and should get financing this month.

The home was originally appraised a couple months ago (not at the time of separation 30 months ago) by someone the mediator recommended. I was reasonably satisfied with that appraisal but then her loan company did their own appraisal and came in with a value $50K lower than the original. We'll discuss today with the mediator how to handle that situation.

It gets worse. I have an hour drive to and from work and would like to move slightly closer. The logistics of me getting our 2 kids to and from daycare (where they stay before and after school) with me even further away could make a bad driving situation even worse. I don't think there's any way to compensate me for the disparity in commutes or the fact that I've made clear career sacrifices so that that she could establish and maintain her academic career.

This feels like a no-win situation.

No, there is no way to compensate you for the commutes or for any sacrifices made during the marriage. Particularly since she will be living in the home that you chose to live in while you were still married. You made the decision to have that commute when you either purchased the house or accepted the job. Now that you are choosing to move closer to your job, that's another choice you are making.

As far as the appraisal goes, I am sorry, but the judge would go by the appraisal arranged by the bank. What a bank is willing to accept as a home's value is far more likely to be the correct value. If you were selling the house to an outsider, you would lose the sale if you insisted on a price 50k higher than the bank was willing to accept. You could however, arrange a third appraisal, to see if the bank's appraiser was way off the mark. However, if you are going to do that, you would have to do it well before your stbx closes on the loan, so that it can be argued with the bank.

 

[mistoffolees]

The home was originally appraised a couple months ago (not at the time of separation 30 months ago) by someone the mediator recommended. I was reasonably satisfied with that appraisal but then her loan company did their own appraisal and came in with a value $50K lower than the original. We'll discuss today with the mediator how to handle that situation.

Then what the heck are you complaining about? If the home has increased in value during the 30 months you lived there, you're going to benefit from it - as well as getting the interest and tax deductions. Seems to me that your griping is unfounded.

The appraisal is a completely different issue. Loan companies will be conservative and appraisers will tend to look for the highest reasonable price. However, if she has to refinance, the amount the loan company appraised it at will be the relevant appraisal unless you can convince them they made a mistake. I would probably start with a certified appraiser whose opinion carries more weight than an average 'home appraiser'. If the appraisal you already have is from a certified appraiser, I'd take it back to the loan company to appeal their value. In the end, though, what the loan company would approve is probably more important than what someone says it might be worth (you could try another loan company to see if another one would offer similar terms but accept the higher appraisal).

 

[Bali Hai]

No, there is no way to compensate you for the commutes or for any sacrifices made during the marriage. Particularly since she will be living in the home that you chose to live in while you were still married. You made the decision to have that commute when you either purchased the house or accepted the job. Now that you are choosing to move closer to your job, that's another choice you are making.

As far as the appraisal goes, I am sorry, but the judge would go by the appraisal arranged by the bank. What a bank is willing to accept as a home's value is far more likely to be the correct value.

Not true. The banks appraisal is in the interest of preserving the bank's "investment" in the event of a default.

The actual fair market value of the property can be established using a professional appraisal company located in the immediate area.

If you were selling the house to an outsider, you would lose the sale if you insisted on a price 50k higher than the bank was willing to accept. You could however, arrange a third appraisal, to see if the bank's appraiser was way off the mark. However, if you are going to do that, you would have to do it well before your stbx closes on the loan, so that it can be argued with the bank.

If the bank is not willing to refinance the property for the amount needed, then OP's stbx will just have to cough up the difference!!

 

[tuffbrk]

OP should request copy of appraisal and check the comparables that were used. Make sure that they're current sales and in your neighborhood.