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Everything You Need to Know Before You Sell Real Property in California Divorce

During the divorce process, spouses often find themselves in a position to sell a piece of community real property (i.e. a house or land). There are many reasons spouses sell real property during the course of their divorce, including financial hardship, court order, settlement terms, etc.

Once the decision is made to sell the property, the parties can rest easy knowing that the California Family Code imposes the highest duty of good faith and fair dealing in the management and control of community assets on both spouses, right?

Fiduciary Duties Between Spouses Impacting the Sale of Real Property

Family Code 721 Imposes a Duty of the Highest Good Faith and Fair Dealing on Spouses

(a) Subject to subdivision (b), either spouse may enter into any transaction with the other, or with any other person, respecting property, which either might if unmarried.

(b) Except as provided in Sections 143 144 146 16040 , and 16047 of the Probate Code , in transactions between themselves, spouses are subject to the general rules governing fiduciary relationships that control the actions of persons occupying confidential relations with each other.  This confidential relationship imposes a duty of the highest good faith and fair dealing on each spouse, and neither shall take any unfair advantage of the other.  This confidential relationship is a fiduciary relationship subject to the same rights and duties of nonmarital business partners, as provided in Sections 16403 16404 , and 16503 of the Corporations Code , including, but not limited to, the following:

(1) Providing each spouse access at all times to any books kept regarding a transaction for the purposes of inspection and copying.

(2) Rendering upon request, true and full information of all things affecting any transaction that concerns the community property.  Nothing in this section is intended to impose a duty for either spouse to keep detailed books and records of community property transactions.

(3) Accounting to the spouse, and holding as a trustee, any benefit or profit derived from any transaction by one spouse without the consent of the other spouse that concerns the community property.

Family Code 1100 Imposes a Duty of Full Disclosure and Equal Access to Information on Spouses

(e) Each spouse shall act with respect to the other spouse in the management and control of the community assets and liabilities in accordance with the general rules governing fiduciary relationships which control the actions of persons having relationships of personal confidence as specified in Section 721 , until such time as the assets and liabilities have been divided by the parties or by a court.  This duty includes the obligation to make full disclosure to the other spouse of all material facts and information regarding the existence, characterization, and valuation of all assets in which the community has or may have an interest and debts for which the community is or may be liable, and to provide equal access to all information, records, and books that pertain to the value and character of those assets and debts, upon request.

Divorcing spouses can always trust each other to act reasonably, right?

In order to sell community real property, two people who are fully engaged in the process of legally dissolving their marriage in court must jointly choose a realtor, agree on a listing price, install a lock-box, install a ‘For Sale’ sign, meet prospective purchasers, agree on and make counteroffers, make the property available for all showings, inspections, appraisals, buyers, sign all listing, sale, and closing documents, and decide what happens to the proceeds of the sale.

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What Can Go Wrong When Spouses Agree to Sell Property?

For anyone who just rolled their eyes, snorted, scoffed, smiled, or nodded; below is a checklist of example provisions to include in any stipulation, order, or judgment for the sale of community real property in a California dissolution or legal separation proceeding. The entirety of this agreement can also be included in any marital settlement agreement. The sample provisions were drafted by Colleen Sparks, a California divorce attorney.

Here are a few helpful tips to keep in mind:

  • During the course of these sales, disputes oftentimes arise between the spouses regarding issues such as possession of the property, title, mortgage payments, waste, etc. Realtors and real estate brokers are not attorneys, and unless they have extensive experience selling properties subject to divorce proceedings, they probably don’t have the knowledge necessary to navigate these tumultuous waters.
  • Appointing the chosen realtor as the Court’s expert, pursuant to Evidence Code 730 can resolve many disputes before they even arise because the realtor maintains a duty to the Court in lieu of the spouses in order to sell the property.

Free Sample Sale of Real Property Agreement –  Stipulation Example

    1. The community real property (known herein as “The Property”) located at [PROPERTY DESCRIPTION AND ADDRESS OF PARCEL] shall be listed immediately for sale by the parties and remain listed until it is sold.
    2. [NAME OF REALTOR] is hereby appointed as the Court’s Real Estate Expert pursuant to Evidence Code Section 730 to be used in the listing and to carry out and facilitate the sale of The Property.  By appointment as the Court’s Real Estate Expert, said Real Estate Expert maintains a duty to the Court in lieu of the property owners in order to sell The Property. Real Estate Expert shall meet and confer with the parties in an effort to resolve all issues related to the listing. Where there is a dispute, Real Estate Expert may make recommendations and requests to the Court for orders necessary to execute the sale of The Property. The Real Estate Expert’s recommendations and requests may be admitted as evidence and considered by the Court, subject to cross-examination as called by the objecting party.
    3. The parties shall meet and confer in setting the listing price for the sale of The Property based upon the recommendations of the realtor.  Unless otherwise agreed upon by both parties, in a separate writing, The Property shall be listed for sale ‘as is.’  The Property shall be listed within five (5) days of the realtor being selected.
    4. No reasonable offers for the sale of The Property shall be refused by either party.
    5. Neither party shall commit any waste on The Property or cause there to be any damages to The Property.
    6. The parties shall cooperate fully, and reasonably, in performing all acts necessary to facilitate the listing and sale of The Property as quickly as practicable; including, but not limited to, installation of a lock-box, installation of a ‘For Sale’ sign, meeting prospective purchasers, making counteroffers, making The Property available for all showings, inspections, appraisals, buyers, and signing all listing, sale, and closing documents.    Neither party shall prevent or delay The Property from any showings, appointments, caravans, open houses, appraisals, buyers, or in signing all listing, sale, and closing documents.
    7. The parties shall be responsive to any communications or documents required through the listing and sale of The Property and shall reply same-day or if after hours, then by the morning of the next business day.
    8. The parties shall vacate The Property and deliver possession of same to the purchaser in compliance with the contract of sale, unless each party agrees to an earlier date.  In the event that either party fails to vacate and deliver possession as provided in the contract, the non-complying party shall be fully responsible and solely responsible for paying any rents, legal fees, or other costs resulting therefrom and hold the complying party harmless therefrom.
    9. The net sale proceeds from the sale of The Property shall be delivered by escrow to [LOCATION WHERE FUNDS ARE TO BE HELD IN TRUST].  The trustee of the funds (often, one of the party’s attorneys) is to provide a copy of the close of escrow documents and notification of funds being received and deposited forthwith. The funds are to be deposited into an interest-bearing account in the name of the parties for their benefit.  Both parties shall cooperate in providing any and all documents necessary for the said account to be opened in a timely manner.  A “timely manner” is defined as providing any and all documents necessary within five (5) days of the request being made.  The funds held in the account shall be disbursed only by written stipulation of the parties and/or order of the Court.
    10. Both parties are fully aware that if either one of them does not cooperate with the listing and sale of The Property and all terms herein, the complying party can seek ex parte orders from the court in order to enforce the provisions herein.  This Stipulation and Order is being entered into so The Property is listed and sold, as soon as possible, and without delay under a reasonable offer.

Notice: Please contact a divorce attorney to advise you of your rights upon an assessment of the facts in your case before using these sample templates. If you are trying to negotiate an agreement regarding the division of community property in your divorce matter, it is strongly advised that you contact a family law attorney to consider all of your options.

Also see In re Brace: Is Your House Community or Separate Property in California Divorce and Bankruptcy Court? for more information on community real property rules in California