Divorce in a Community Property State
Divorce is never fun, but when it does happen, it’s important to be as educated and informed as possible. We’re here to give you the information that you need, and walk you through how to buy a home while dealing with divorce in a community property state.
Christine Edwards, NMLS 2037883 | Gaylord-Hansen Team at CrossCountry Mortgage
Chelsea Abate, Real Estate Agent S. 0194816 | Carlton Holland Realty – B145715
Brandon Leavitt | Leavitt Family Law Group
Christine Edwards:
Hi. Christine Edwards here with the Gaylord Hansen Mortgage Team. I'm here today with my cohost, Chelsea Abate with Carlton Holland Realty. Today, we are here to talk about divorce in a community property state. We brought on a special guest, Brandon Leavitt with the Leavitt Family Law Group. Thanks for joining us today, Brandon.
Brandon Leavitt:
Pleasure to be here.
Christine Edwards:
So Nevada is a community property state. Can you explain to us what community property state means?
Brandon Leavitt:
I can. I can. So community property, it's found in the Nevada revised statutes in chapter 01:25. And just to summarize quickly so so everybody understands what what community property is, the easiest way I explain it is any asset or debt you acquire after the moment you say I do, regardless of how it's titled solely in the husband's name, solely in the wife's name, or whatever, titled with, you know, husband and mother or whatever it may be. Any asset or debt acquired after the moment you say I do, each of you own half. K? I I I like to call it the fifty fifty rule. Everybody's entitled to fifty fifty or fifty percent. There are four exceptions to the fifty fifty rule or community property. Okay? The first exception to community property is separate Property you own before marriage that you bring with you into the marriage that you still have today, that property maintains its separate property characteristic. Why? Because it was acquired before you said I do. The second exception to community property is inheritance. Someone's relative passes away and they receive a piece of real property or jewelry or something like that. As long as that asset is not commingled into the marital community, that asset will be maintained as the sole and separate property of the person that received it via the inheritance. K? So
Chelsea Abate:
let's dive into that real quickly. Let's give a scenario. Woman is married to her husband, or her partner and she inherits a house, real property from a deceased loved one. In that scenario, what keeps it separate and in what situation would it then turn into community property?
Brandon Leavitt:
Great question. And and I see this a lot actually in my practice. So I just wanna make sure I understand the facts. So husband and wife marry, one of the spouses receives via inheritance from a deceased relative, a piece of real property, a home, or
Chelsea Abate:
something like that.
Brandon Leavitt:
So, that will be maintained as a separate property asset of the person that it was inherited by.
Chelsea Abate:
Okay.
Brandon Leavitt:
As long as the person that receives it doesn't transmute its separate property characteristic. So in the event that during the marriage, say the the I'll just say it was a husband who receives the home, decides he wants to refinance the house Mhmm. During the marriage because he wants to take advantage of great interest rates or something, which isn't the case now. Sorry. But in the event of the refinance, he puts his new spouse on the title to the home. Yes. In essence, he gave his wife half of an interest or a community interest in the in that home because he affirmatively did something, had her sign off, and added her to the title.
Chelsea Abate:
Okay.
Brandon Leavitt:
Transmuted its separate property characteristic, made it a community asset.
Chelsea Abate:
And say great great answer. But say he inherits a home, he doesn't make those upgrades, he doesn't refinance it, But he does rent it out, turn it into an investment property, and he starts receiving monthly assets. At what point does that become community property? Is it when he starts using the money, the monetary value that he's getting from that home and start spending it on household expenses? What what does that look like?
Brandon Leavitt:
Great great question. So, again, I just wanna make sure I understand. In essence, he decides to take the separate property asset and rent it and generate an income from it.
The same is going to be true under the concept of separate property. One of the exceptions to community property I was telling you about Mhmm. Is that whatever the income that he gets from that separate property asset, he's allowed to do whatever he wants with it. It's his. He can put it anywhere he wants, and it belongs to him. Now in the event that he chooses to put that money in a community bank account, one that was created or acquired after I do, or one that both parties put money into from their jobs after I do, If he takes the money that was created from the rental, if he makes it a rental, and puts it into a community bank account, in essence, he's he should be concerned about the the legal concept of something called commingling. Okay. Commingling is where you take your separate property and you put it into a community asset. You mix all the money around, and then the court can't can't tell which green dollar belongs to him and which green dollar belongs to the water. Moneys the water's complete. Okay. So under our law in Nevada, the the courts basically say that, if you mix the money together, it's all community now. You can't you can't draw out your own dollar. Now sometimes, and not that I wanna go down this rabbit hole, but I wanna make sure that I give the answer, you know, that your viewers need, is that sometimes you can pull that green dollar out. It it's really fact specific on how much, when, why. And, I guess the short answer, not to to deliver the point, is if you guys are in that situate situation or scenario, give my office a phone call. Happy to schedule a consultation. We will figure it out together. So
Chelsea Abate:
And like you've said, it's a case by case base basis. Like every it could change every family situation is different. And so the way that you would structure that is completely different, and it just really depends on what they're going through, what their needs are.
Brandon Leavitt:
For sure. Hundred percent.
Christine Edwards:
Okay. So you had mentioned, it being a fifty fifty state. Yeah. So once you get married, you say that I do, fifty fifty. Is there a way to deviate from that fifty fifty split when you're going through the divorce?
Brandon Leavitt:
The law is pretty clear that each party is supposed to receive fifty percent of the assets. But sometimes, oftentimes, actually, during divorce processes, one spouse will generally get more of the physical assets of the marriage. For example, one spouse really wants to maintain the house. It's important to them. It's their home. They love it. They wanna live there. Their children, you know, really become accustomed to that place. They don't wanna sell the house. So one spouse may get possession of the home and divorce or a car or retirement account. So you asked, can you deviate? The short answer is under our law, no. Okay. But one party can have more of the physical assets, and then the other party has to pay what's called a property equalization payment. So, basically, what I do in my practice is I create what's called a marital balance sheet. I take all the assets, all the debts, and I basically create a spreadsheet. And at the bottom, the numbers need to be equal. If one party keeps more of the physical property, then the other party has to pay out what's called a property equalization to pay them for their interest in the property that the other party is keeping. Makes sense?
And sometimes that would be, like, they would have to refinance the property to take the equity out to possibly pay the mortgage. All the time unless you have a large pot of cash, and not everyone does. So, yeah, it happens all the time.
Chelsea Abate:
And you were on number two of your four differences. Let's take you back on number three. What was that?
Brandon Leavitt:
So going back to community property again, fifty fifty fifty is the rule I call it. So we talked about separate property, what you bring into the marriage with you, you take out with you when you go. We talk about inheritance as long as you don't transmute it and give the community an interest in it. The third exception to community property is marital gifts. We don't give gifts in Nevada and expect to get half back in divorce. So for example, Chelsea, if I were married to you and I was feeling generous for our anniversary next year and I give you a ten thousand dollar Rolex watch and we're gonna get divorced, I don't I'm not gonna expect to get five thousand back from the gift that I gave you. The fourth exception to the community property rule is personal injury settlements. In the event that, you and I were married and, you get a car accident, and you suffer a million dollars worth of personal injuries, the community does not have an interest in that million dollars.
Chelsea Abate:
Okay. So I wouldn't owe you five hundred thousand or however much was left in the event that we were getting to
Brandon Leavitt:
However and and I wanna put an asterisk here is that in the event that you made a claim for lost wages, let's just say eight hundred thousand dollars of that million dollar settlement was for your personal injuries, and two hundred thousand was for your lost wages because you couldn't work because you're recuperating. Yeah. The marital community does have an interest in that. So if we were married Yeah. I would be entitled to one hundred thousand of the one million dollar settlement because eight hundred belongs to you, two hundred belongs to the community, half of the two hundred goes to you, one hundred goes to me.
Christine Edwards:
Okay. So can that personal injury, those funds that were collected, can that be subjected to community property if it's put into a joint account? Does that need to be
Brandon Leavitt:
It can. We talked about the concept of commingling. Okay. It really depends on where you put the money, how you know, why you put it there, etcetera. So oftentimes, what happens is people think, well, we're married. We're gonna act like husband and wife. We're gonna have a joint account. Right. And I don't have any other accounts, and I got hurt. I'm gonna take this money. I'm gonna roll it into the joint account. That is where you commingle money. You take something that belongs to you. You mix it into a community account, and then the community can basically obtain a community And
Chelsea Abate:
for everyone at home, that means you're muddying the waters.
Brandon Leavitt:
Yeah. So I do wanna say here that, again, commingling and transmutation are extremely fact specific. Okay.
Chelsea Abate:
And all things you should be aware of if you're getting married. These are things that, you know, our our buyers and our sellers, they really need to be aware of this when buying property. And when buying property in a relationship that you see leading to marriage, knowing how to handle it after depending on what your situation is. Let's jump into a quick question that, I've I've ran into with some of my my buyers. So, I recently had a buyer who is going through a divorce and now buying a new property to move into while their home is up for sale. This is extremely important to be aware of as a realtor because her buying a home prior to her divorce being finalized would actually give her spouse, who she's divorcing, an entitlement to that property. And so it's really important as a realtor for us to know how to take care of our buyers and our sellers in these kind of situations. That's why you really want a realtor who, you know, knows these situations and can help you guide you through them. Because, you know, if a realtor was inexperienced and didn't understand that and and didn't address that with her and just helped her buy a property before her divorce is finalized, At some point, her husband's entitled to it.
Christine Edwards:
It it's super important that her husband is going to cooperate with her because come closing of that property, he's gonna need to end up at the title company during closing, during signing, and, fill out a a deed of trust. He's gonna sign off on that deed of trust that is awarding that property as a sole and separate property to her. So it's it's very important that, you know, that the spouse is gonna wanna cooperate with her.
Chelsea Abate:
And that is something important for buyers and sellers to be aware of. In the event that you're getting a divorce, you're selling the property that you both live at and you're looking to buy a new home, you need to know your situation well. Because if you're purchasing before it's finalized, what does that mean for your new home? Do they get a piece of the pie and are they the type to sign that deed of trust or are they type the type to, you know, fight for a piece of it and and, you know, take advantage of the opportunity or the situation. So have you seen that in any of your,
Brandon Leavitt:
in Nevada is that the marital community continues to grow until a judge signs a decree of divorce and it's filed with the court Okay. On the record. So, I had a situation where, somebody actually won a lottery during during the divorce process. Yeah. They won a lottery and and won fifteen million dollars.
Chelsea Abate:
Oh my gosh.
Brandon Leavitt:
And they were already in the divorce process. Oh. The divorcing spouse, was entitled to have
Chelsea Abate:
Oh my gosh. It reminds me of the classic movie about Vegas with Cameron Diaz and Ashton Kutcher. Right? There you go. It's a very similar situation. That's wild.
Brandon Leavitt:
Some some states some some states, I'm not licensed in California, so I say this with a disclaimer that I can't give legal advice there. But I do know that California, their marital community stops at the time of filing for divorce. Nevada is different. In fact, in the last several legislative sessions, they have tried and placed bills before the Nevada legislature to change that, and it has failed in committee.
Chelsea Abate:
Okay.
Christine Edwards:
So even if they, even if a temporary order is in, like, in process, then it still wouldn't count. It has to be
Brandon Leavitt:
The marital community continues to grow and is not dissolved or severed until a judge signs a decree of divorce.
Chelsea Abate:
So anything that you're doing even at the point that you decide you want a divorce, if it takes two years, that two years is counted. So, you know, liabilities too.
Christine Edwards:
I have to take into consideration just liabilities if one spouse is is creating liabilities.
Brandon Leavitt:
Well, okay. So I wanna address that. And and what you're saying is true, but there's a couple mechanisms we have in Nevada that that is designed to stop that. One of the one of the mechanisms we have here is called a joint preliminary injunction. Okay. What a joint preliminary injunction does, we call them JPIs in Mysphere JPI. What a JPI does is, in essence, restrains both parties from selling assets, acquiring new debts, going and, you know, gifting property away. Sometimes think people think, you know, I'm getting divorced, and I hate him or her and I'm gonna get sneaky and I'm gonna, you know, I've always wanted a Harley Davidson and she never let me buy a Harley and I wanted one forever. Has the jurisdiction to say, well, okay. Now you have to sell the Harley and give her the money. So, you know, another scenario that happens is the spouse will go, you know what, brother? I owe you fifty thousand dollars. Why don't you I'm I'm gonna give you this fifty thousand dollars. Hang on to it for me, and when we're divorced, you can give it back. Thank you. The joint preliminary injunction stops people from gifting, selling, acquiring new debts, things like that.
Chelsea Abate:
And going back to during the divorce and, you know, two spouses, two partners, they're selling a home or they're going to sell a home and one decides to stay in it until that time period, the other one decides to move out, you know, just some advice as far as protecting yourself in that situation from a realtor's perspective. If you're in a situation where you're the divorcee that's moving out of the home while they're staying in it until you sell it, you really want to, do a couple of things to protect you in the event that, like we're talking about angry spouse, they trash the house. They, you know, some really big ticket items go disappearing out of there in situations where, you know, hey, the safe, I don't know what happened to it. And you wanna protect yourself. You know, I would advise somebody to do a home inspection if you have to. It's worth the money to find out the condition of the home so that you know prior to selling it what it's got going on with it and to make sure it's okay. You can go ahead and take photos of it. You can have things done just to make sure that it's you're leaving it in the same condition that you're gonna be selling it.
So what I tell my clients to do is to do a video inventory. Mhmm. No. Oh, that's fine. Most everybody has a a smartphone these days. If you plan on vacating the marital residence and you wanna live someplace else during the divorce process, make sure you go through each room and video record each room. So at the time of divorce, when it's time to divide property and, you know, somebody says, you know, hey. I want I want half of the twenty thousand dollar diamond earrings. I don't have any diamond earrings. What are you talking about? Well, here's the video that I took the day that I left. If you don't have them, where are they?
Chelsea Abate:
Yep.
Christine Edwards:
Because you've been in the house for the last however long by yourself. Where's the diamond earrings?
Chelsea Abate:
Yeah. It's just good to cover your bases.
Brandon Leavitt:
So video inventory is what I tell my clients to do.
Chelsea Abate:
Good advice.
Christine Edwards:
So I know you had already mentioned, separate property and marital Anything I
Brandon Leavitt:
wanna add? Anything I wanna add? That's a broad question. I think it's a a hard one because I I live this life every day.
Chelsea Abate:
Sure. Pick a topic. Yeah.
Brandon Leavitt:
Could you be more specific what your viewers might wanna know?
Chelsea Abate:
Well, what if you picked from, like, the last five cases you've seen that had real estate transactions or separated?
Brandon Leavitt:
Yeah. It's a good question. So one of the things again, I I kind of alluded to it. Sometimes one of the spouses really wants the house. It's important. I really want to maintain this property. My children live here. We'd I don't wanna upset the apple cart, and I'm going to fight to keep the house. And as a result, that spouse may have to trade their interest in other assets, like an interest in a 04:01 k or a car or something else, another tangible piece of property in exchange for the community interest in the house. A lot of times, what can happen is where by bartering for the the home, you actually strap yourself because you have to go qualify for the mortgage on your own, and sometimes you can't do it, which is gonna lead to a forced sale anyways. Or you become what I call house rich and cash poor where, you know, because you fought so hard to keep the large tangible asset, the home, you might take away all of your your discretionary income or or spending power because you've rolled it up in this asset that you really, really wanna keep.
Chelsea Abate:
Yeah.
Brandon Leavitt:
So I would say to your clients, you know, you need to do a cost benefit analysis. Does it really make sense for you to actually maintain the property? Can you live there and not substantially, you know, destroy the lifestyle that you're trying to keep?
Christine Edwards:
You have. Yeah.
Brandon Leavitt:
Because my kids really love the house, or I want this home. It's my home. I've remodeled it to my specifications and my likings. Yes. But can you actually afford to stay there when this is all done?
Christine Edwards:
So you had mentioned, you know, them possibly refinancing. When you have that person in that scenario, are they making sure that they are eligible to refinance before that divorce decree is final and they're obligated to that?
Brandon Leavitt:
Well, that's a great question. And if they have a divorce attorney who's worth their salt, that's gonna be a consideration. I'm not gonna toot my own horn, but I am gonna say that it is for me when I'm when I'm considering, you know, a structured settlement to, you know, deal with the divorce action. I wanna make sure that my client is gonna be financially able to survive after it's all said and done. It needs to be part of the narrative. It just does. And, you know, there are attorneys, and I'm not gonna speak ill with my colleagues, but you want the house? I'm gonna get you the house. No questions asked. And then at the end, they go, like, I I can't afford it. I can't pay for it. What do I do? Right. I'm sorry. That's what you wanted. So, again It's great. Who you hire sorry. Who you hire as counsel is really, really important. Make sure that they know what they're doing.
Chelsea Abate:
It's great that you educate your clients. You know, there are some professionals that will just take the demands or the requests and push them through like you're talking about. But the to take your professionalism to the next level, you need a lender. You need a realtor. You need a an attorney. A strong divorce team. Yeah. A divorce team is a perfect, you your life's in disarray and you really need that team behind you that's gonna, like, get you to the finish line to go back into a new chapter of your life. So,
Brandon Leavitt:
Who is going through a divorce? My heartfelt and most sincere apology. It's it's an awful experience I know. I I would say make sure that you have competent and qualified counsel, one that understands your needs, one that understands your goals. Not that I want to, but gonna make a plug. Give my office a call. We're happy to, you know, sit down with you, address your concerns, make sure that we understand what's going on with you and your case, and, you know, we can tailor make a strategy just for you. So, we'd be delighted to assist in any way that we can at the Levitt Family Law Group.
Christine Edwards:
So we definitely understand that this is a stressful and emotional time. It's super important to have a strong divorce team by your side to make sure that this process is as seamless as possible. So if you have any real estate questions, family law questions, or mortgage lending questions, please give us a call.
Chelsea Abate:
I'm Chelsea with Carlton Holland Realty. I answer my phone at all times. 7028244706.
Brandon Leavitt:
Brandon Leavitt with the Leavitt Family Law Group. Our office is open eight to five, Monday through Friday, 7026050065. If you come and see us, in fact, on my business card is my personal cell phone. So you can get a hold of me whenever you need to.
Christine Edwards:
And Christine Edwards with the Gaylord Mortgage team at CrossCountry Mortgage. You can reach me at 07:02 two 05:01 five nine nine.