Duke Order So Children Can Stay in House After Divorce
My Wife Got the House
As a divorce attorney, I hear all sorts of crazy stuff. For example, “My wife got the house in divorce”.
What does this mean? Why would the wife, and you, get the house? Isn’t it 50-50?
It Doesn’t Really Mean She Got the House
Let me explain! Let’s say you and wife have NO other assets than this 1 million dollar house that you bought during the marriage, with community property. (like, it’s been appraised by a certified real property appraiser, and it’s 1 mil – not just because someone says it’s worth that). It has a remaining $500,000 mortgage on it. (This means the you still owe the bank this amount of money on it). Well, that means the home has $500,000 equity. So, if it’s community property, and there are no other separate reimbursements (such as downpayments, Epstein/Watts), then $500,000/2 = $250,000.
So, in a divorce, if your wife is staying in the house, she has to come up with $250,000 to BUY YOU OUT. She didn’t just “get the house” for free.
Now, the way to accomplish this is if she has $250,000 SEPARATE property sitting around, a refinance of the house, or rich parents.
Sale of House
Sometimes you cannot come up with this equalization payment to buy the other out, so therefore the house would be sold, and you would divide the net proceeds.
But what if you want to keep the children in the same house? You can do a “Duke” order if both parties agree. A “Duke” order comes from a case with that name, In the Marriage of Duke (1980) 101 Cal.App.3d 152, 18262, In re Marriage of Duke
Deferred Sale of House
In that case, the Court ordered a deferred sale of the house for the benefit of the children. The court astutely noted, “The value of a family home to its occupants cannot be measured solely by its value in the marketplace. The longer the occupancy, the more important these noneconomic factors become and the more traumatic and disruptive a move to a new environment is to children whose roots have become firmly entwined in the school and social milieu of their neighborhood.” The court noted that selling the house now would “expose the wife to serious economic factors created by present inflationary impacts on the real estate market with resultant high interest rates, tightening of credit, increased market prices, and shortage of housing at a time when she is still responsible for the shelter of her children”.
Basically, the house will NOT be divided now. The children will live there, and the parties will continue owning the house together. After the kids move out, the house will sell and the proceeds divided.
Family Code 3801
A Duke order has been codified in Family Code 3801:
(a) If one of the parties has requested a deferred sale of home order pursuant to this chapter, the court shall first determine whether it is economically feasible to maintain the payments of any note secured by a deed of trust, property taxes, insurance for the home during the period the sale of the home is deferred, and the condition of the home comparable to that at the time of trial.
(b) In making this determination, the court shall consider all of the following:
(1) The resident parent’s income.
(2) The availability of spousal support, child support, or both spousal and child support.
(3) Any other sources of funds available to make those payments.
(c) It is the intent of the Legislature, by requiring the determination under this section, to do all of the following:
(1) Avoid the likelihood of possible defaults on the payments of notes and resulting foreclosures.
(2) Avoid inadequate insurance coverage.
(3) Prevent deterioration of the condition of the family home.
(4) Prevent any other circumstance which would jeopardize both parents’ equity in the home.
This is great! So why doesn’t everyone do a Duke order with their family home?
1. It’s too expensive.
Not everyone can afford the hefty mortgage AND another house payment.
2. If you don’t trust the other person, your credit may be ruined.
Part of the agreement in a Duke arrangement would be the person staying in the house has to continue to pay the mortgage while they live there. However, if they default, since you are still on the loan together, your credit may be ruined. (Does not apply if the person staying in the house is the only one on the loan).
3. You continue to own something BIG with your spouse.
Most people want to wash their hands of their ex. If you are co-owning a house under Duke order, you would still need to account for it. But, if you have children, this is a lifetime bond anyway, so carry on.
Tips for Duke Order
If you do decide on a Duke Order so your children can stay in the house after divorce (deferred sale of family home), make sure you have a crisp, extremely clear real property ownership contract contained in your Judgment. If you are the one staying in the home, you’ll want to make sure you include clauses relating to capital repairs (so you’re not the only one responsible). If you are the one being displaced, you will want to make sure you insert clauses relating to keeping the premises in same or better condition (so there is no waste). Also, do not forget to sever your joint tenancy, so in case one dies, the other ends up with the entire property due to right of survivorship.