Financial issues before legal proceedings

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

It was a great long weekend and we decided to get a divorce. Doesn't it make you feel wonderful ?

We are married for 8 years and looks like it won't be 9. My spouse is self employed and makes much less money than I do. I pay for the major stuff out of my paycheck like mortgage and my spouse pays for utilities and groceries in general, yet sometimes can not make the ends meet and asks me for more money. No problems so far. Our bank accounts are separate. I have a secondary account that I automatically deposit a part of my pay check as a rainy day fund. My spouse knows about it. It has some significant amount of money as I was trying to build up a 6 months worth of mortgage payments in the savings. In this job market, no one can be too careful.

California is a community property state I know and my spouse is entitled to half of anything I have and vice-versa. Please correct me if I am wrong. While we were arguing (rather fighting) which brought us to the divorce decision, my spouse brought up moving out but since the finances are tight that way, wants half the money in the rainy day fund account. Problem is, I am going to be left with the house (which is under my name and at the time of purchase, with a signed a release so that I can get the mortgage under my name only) and the house is about 100K under water, thinking about loan-to-market value of the property.

I really do not want to hand the money out, up front. If need be, I can write the deposit check to the landlord since my spouse does not have any spare funds or very little. Other than that, I want to wait for the results of the divorce settlement.

Am I reasonable or way out of my mind and fork the money over ?

As a bonus question: when does the division of assets take place ? At the time of legal separation or at the time when the divorce is final ? I meant the value of assets and sums of bank accounts and such.

Thank you for your answers

You're looking at a lot of issues that you aren't even beginning to address. You should really consult with an attorney.

Just a few off the top of my head:

If the house is $100 K underwater, you're not going to be able to refinance in your own name unless the bank will negotiate a lower principal amount or you come up with a large chunk of cash.

If you take the house, you'll get the mortgage debt - which means you're taking on more debt than assets - so you'll need other assets to balance it out. That may mean the entire rainy day fund.

In most states, an 8 year marriage wouldn't entitle him to alimony. In CA, he could get several years if you meet the other requirements. Since you make more than him, it's certainly a possibility.

You might well decide that you can't afford to live separately until the divorce is final.

I would not give him any money from any source until you clear it with an attorney. If you DO decide to give him some of the 'rainy day fund', I would only give him half and at the same time, move the remainder into an account solely in your name. And have him sign an understanding that you are splitting the account and he will not charge you with dissipation of marital assets for moving the remainder into your own account. You see, he's using his half for living expenses - which is allowable. If yours goes into a non-marital account, that's not really OK without approval. Ideally, don't do it until your attorney says it's OK.

mistoffolees said:

You're looking at a lot of issues that you aren't even beginning to address. You should really consult with an attorney.

Just a few off the top of my head:

If the house is $100 K underwater, you're not going to be able to refinance in your own name unless the bank will negotiate a lower principal amount or you come up with a large chunk of cash.

If you take the house, you'll get the mortgage debt - which means you're taking on more debt than assets - so you'll need other assets to balance it out. That may mean the entire rainy day fund.

In most states, an 8 year marriage wouldn't entitle him to alimony. In CA, he could get several years if you meet the other requirements. Since you make more than him, it's certainly a possibility.

You might well decide that you can't afford to live separately until the divorce is final.

I would not give him any money from any source until you clear it with an attorney. If you DO decide to give him some of the 'rainy day fund', I would only give him half and at the same time, move the remainder into an account solely in your name. And have him sign an understanding that you are splitting the account and he will not charge you with dissipation of marital assets for moving the remainder into your own account. You see, he's using his half for living expenses - which is allowable. If yours goes into a non-marital account, that's not really OK without approval. Ideally, don't do it until your attorney says it's OK.

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Unless I misunderstood (and its possible because the OP wasn't really clear) I think that the mortgage is already in just the OP's name.

I am also not sure that I agree that taking on the house means that she should get other assets to balance out the negative equity...after all, she will be the sole beneficiary when the market starts to correct itself and the house begins to appreciate again.

Clarifications:

Me and my spouse only have one car loan and one bank account jointly, neither of them has any significant balances. Few hundred dollars at best. I am willing to pull my name off the bank account and pay of the rest of the loan balance to severe the ties totally.

The rainy day fund account is under my name only. I know whatever is accumulated in that account is community property, but my spouse do not have access to see the account balance or withdraw funds from it, whereas I can. Let's say we have 10 grand in this account right now and my spouse moved out tomorrow, and accumulating slowly to reach say 11 grand at the time of legal separation and 13 grand at the time of divorce finalization. At which time the 50-50 division rule determines what the dollar amount of that 50% is ?

Since house is also under my name, I can go for a refi if need be but it is not a concern of mine right now, as the value of the house is negative with respect to what I owe on it and my spouse indicated having no ineterestin doing anything with the house and since the rights have been waived at the time of purchase, I will be stuck with it. Is that correct ? We purchased this house while we were married. At the time my credit rating was a lot better hence the waiver came into play to use only my credit score while shopping for a loan. Does this absolve my spouse from the loss of money/value and at the same time being entitled to half the cash accumulated in the community property ?

I know it is not a simple case to sort these things out and a divorce lawyer or more likely two will be involved but since the issue is this fresh, I'd like to get opinions of others who has been thru same or similar situations before heading out to look for a lawyer.

Thank you again.

LdiJ said:

Unless I misunderstood (and its possible because the OP wasn't really clear) I think that the mortgage is already in just the OP's name.

I am also not sure that I agree that taking on the house means that she should get other assets to balance out the negative equity...after all, she will be the sole beneficiary when the market starts to correct itself and the house begins to appreciate again.

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According to OP: "with a signed a release so that I can get the mortgage under my name only" which is why I assumed that it's not already in OP's name only. I agree it's not clear.

As for equity, the court's don't want to be in a position of predicting the future. They're going to look at CURRENT assets and debts. If the house is worth $300 K with a $400 K mortgage, they should each get $150 in assets and $200 in debt. If one person takes on all the value and also all the debt, they're entitled to something else to compensate.

If they agree otherwise, that is, of course, between them.

mistoffolees said:

According to OP: "with a signed a release so that I can get the mortgage under my name only" which is why I assumed that it's not already in OP's name only. I agree it's not clear.

As for equity, the court's don't want to be in a position of predicting the future. They're going to look at CURRENT assets and debts. If the house is worth $300 K with a $400 K mortgage, they should each get $150 in assets and $200 in debt. If one person takes on all the value and also all the debt, they're entitled to something else to compensate.

If they agree otherwise, that is, of course, between them.

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I agree with your argument in theory. However I have yet to see a single case where it actually played out that way in the courts...not based merely on negative equity.

The only cases I have actually seen have been when one party dissipated the equity.

My spouse yesterday said something about talking to a divorce attorney and since the release form is signed and I want to stay in the house (because I can not sell it without damaging my credit rating and am able to make mortgage payments) it is my decision and my spouse should not get hit with loss of the property value, whereas, being entitled to the cash accumulated in my rainy day account, 401K and whatever other earnings/savings I have. Phrase of "taking me to the cleaners" have been liberally sprinkled into the conversation as well as getting a hefty alimony and paying for health insurance because I am making much more compared to the self employment income. If I am paying thru the nose for the mortgage and have about $1K for my living expenses every month after all is said and done with the big stuff, what alimony can be granted, especially after forfeiting the house knowing the financial consequences ?

Now as a twist to all this, what happens, I dump all the money in the rainy day fund into some home improvement projects, which are quite legitimate, nothing like building a $20K sauna or inground pool, more like tiling, getting better appliances, replacing bathtubs etc. The combined cost of these will wipe out my reserve funds but will not bring the value of the house to the loan value. I still will want to keep the house and make payments on it. Can my spouse have a case to ask half of the money I spent (my decision only) on the community property ?

logi1 said:

My spouse yesterday said something about talking to a divorce attorney and since the release form is signed and I want to stay in the house (because I can not sell it without damaging my credit rating and am able to make mortgage payments) it is my decision and my spouse should not get hit with loss of the property value, whereas, being entitled to the cash accumulated in my rainy day account, 401K and whatever other earnings/savings I have. Phrase of "taking me to the cleaners" have been liberally sprinkled into the conversation as well as getting a hefty alimony and paying for health insurance because I am making much more compared to the self employment income. If I am paying thru the nose for the mortgage and have about $1K for my living expenses every month after all is said and done with the big stuff, what alimony can be granted, especially after forfeiting the house knowing the financial consequences ?

Now as a twist to all this, what happens, I dump all the money in the rainy day fund into some home improvement projects, which are quite legitimate, nothing like building a $20K sauna or inground pool, more like tiling, getting better appliances, replacing bathtubs etc. The combined cost of these will wipe out my reserve funds but will not bring the value of the house to the loan value. I still will want to keep the house and make payments on it. Can my spouse have a case to ask half of the money I spent (my decision only) on the community property ?

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Unless you spend the money on truly necessary repairs..ie emergency type repairs, you are likely to get hit with dissipating marital assets, because you are keeping the home. I definitely would not do that unless an attorney that you have retained advises you that its safe to do.

LdiJ said:

Unless you spend the money on truly necessary repairs..ie emergency type repairs, you are likely to get hit with dissipating marital assets, because you are keeping the home. I definitely would not do that unless an attorney that you have retained advises you that its safe to do.

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So, lets say if I rip the carpet up and put hardwood floors, this may be held as a non-emergency item and I'd be held to pay half of the project cost to my spouse, because I paid for this out of my rainy day fund. Keep in mind that by the time I do this, there is only papers filed to the court, nothing has been heard by the judge, no dates for hearings have even been scheduled.

Also, let's say, instead of putting the money to upgrades, I took that rainy day fund and paid it to the mortgage company as an additional principal. I am still about 90K upside down in the mortgage, keeping the house and I have nothing to show for that money. What would happen then ?

logi1 said:

So, lets say if I rip the carpet up and put hardwood floors, this may be held as a non-emergency item and I'd be held to pay half of the project cost to my spouse, because I paid for this out of my rainy day fund. Keep in mind that by the time I do this, there is only papers filed to the court, nothing has been heard by the judge, no dates for hearings have even been scheduled.

Also, let's say, instead of putting the money to upgrades, I took that rainy day fund and paid it to the mortgage company as an additional principal. I am still about 90K upside down in the mortgage, keeping the house and I have nothing to show for that money. What would happen then ?

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Normally when divorce paperwork is filed, both parties are restrained from spending marital assets on anything other than ordinary living expenses, legal fees, and emergencies. Everything that you have suggested so far does not fit into any of those buckets.

Therefore odds are you would end up having to give your spouse half of what you spent...because again, you would have dissipated marital assets. That also tends to really tick off judges.