My soon-to-be-Ex and I own a house that's already for sale; how's this handled?

[RollingStone]

Hi, all:

I have to laugh; my first choice of screen name was "Sisyphus" (whose punishment was to try to roll a rock up a hill for all eternity), but it was taken. My ex-wife and I are almost divorced, just some details on the custody arrangement (50/50) to tie up. But we own a house together that we have been trying to sell for 2 years with no luck. Right now there are renters in it (lease is up on June 30), and we have it under contract to a realtor here in California, though for now it's not "active". It will be re-listed again on May 1; the tenants have a provision in their lease that we can show it in the last 60 days of their lease. If we are already under contract to a realtor, how is this handled by the trustees? Do they "seize" the property and the rent and then sell it their own way, or do they wait for it to sell, and then they are entitled to my share of the equity in it? By my best estimate of what it will sell for (WAY below the Zillow estimate, but we know it won't sell for that), my ex and I would split about $40k in equity, and I still have some room in my exemptions for most of that. Any help appreciated, or if there's a book I could be reading for answers to stuff like this, I'd appreciate a nod!

[justbroke]

The Trustee doesn't care about the sale of an exempt home unless a.) there is non-exempt equity, or b.) the Trustee intends to take it for the Estate and liquidate the asset. Any sale or contract to purchase may be delayed between the time of filing and the Trustee explicitly abandons the property, you receive a discharge, your case is dismissed, or you Motion to Sell and receive court approval.

Are you both filing bankruptcy?

I hope that you're using an attorney because you actually have something of value to lose if you do this incorrectly. I am in Florida and I can't really talk about California mostly because you're in a community property State and you are not yet divorced and you are about to file bankruptcy. You also have unique issues around California's System 1 versus System 2 exemption schemes (married couples can't double the homestead exemption in System 1?).

I hope that your bankruptcy attorney is talking with your divorce attorney or vice versa.

(I'm confused because you write "soon-to-be ex" and later just reference the person as "ex". It may matter as to the property settlement agreement, disposition of property, the Trustee. That's why I wonder about the order of these legal proceedings.)

[RollingStone]

Hi, Justbroke: Thanks for the quick reply. I forgot to mention that we don't live in the house, so I think that all of the equity would be "non-exempt" beyond the limits of my exemptions (which I understand to be $28,000 here in California). I am the only one filing; haven't filed yet, but am looking for information on how this is going to affect the ex before I do. But we will not qualify for the homestead exemption. And I am working with an excellent attorney here, but haven't officially signed on yet (just had the consultation yesterday) and am looking for more info...

[justbroke]

Okay, so probably just using the unused "homestead" exemption in System 2 ($26,925) + the wild card ($1,350).

Your issue will be that you'll have to work with the Trustee and, if you go into contract during the pendency of your Chapter 7 discharge, you will likely need to seek permission to sell (Motion to Sell). I'm sure your attorney can explain how a sale could affect this.

The problem may be if the Trustee thinks they can sell it for more money than what you are expecting or listed, the Trustee himself/herself may seek the Motion to Sell. It's not your homestead so you're not otherwise protected from the sale. It's really going to come down to what the Trustee may think it's worth versus what you think it will sell for. Those two opposing views are, by definition, are never in alignment. (I should have realized that you weren't living in the home because you mentioned that there was a lease to another person.)

Maybe the Trustee is a godsend? Maybe the Trustee forces the sale, gets some money, and pays you the exempt equity (as well as the ex-spouse's equity). I don't know. The Trustees here in Florida are very creative. We call them "Crustees" -- Creative Trustees.