A just-divorced woman returned one day late last year to her palatial Los Angeles home to find it reeking of cigarettes. Which was odd, since neither she nor her ex-husband smoked. After some sleuthing, she discovered that her former partner, who had to surrender the property to her as part of their bitter divorce battle, had collected strangers’ cigarettes and stuffed the butts into the mansion’s air vents.
“That was a house she fought hard for in the settlement,” said Laura Wasser, a divorce attorney whose client roll reads like one half of Hollywood’s A-List.
Divorce is a multibillion-dollar industry in L.A. When a well-heeled couple splits, an army of attorneys, estate planners, consultants and wealth managers is mobilized. A couple’s real estate ends up being among the most contentious issues in a divorce battle: Who gets to keep the chalet in Aspen? The pied-à-terre in Manhattan? And who stays in the house? When there’s commercial property or active projects involved, things get even trickier. Brokers navigating situations like these have to strike a fine balance between advocating for their clients and being sensitive to the situation.
“There’s a lot of acrimony connected to a divorce,” Coldwell Banker’s Joyce Rey said. Brokers will often need to tap their “psychological skills” and have a “little more patience and understanding” when selling such homes, she added.
What’s mine is yours
California is a “community property” state, meaning that all assets acquired during the marriage are considered to be jointly owned and are required to be split down the middle in the event of a divorce. But for ultra-wealthy couples, it is often more advantageous to put the estate in “joint tenancy,” said Neal Hersh, another divorce lawyer to the stars.
Joint tenancy is a special kind of co-ownership that contains a clause stating that whichever spouse outlives the other automatically receives the deceased spouse’s property interest. It also provides another, more intriguing provision that allows divorcees to avoid paying off some debt while also retaining their separate contributions to the property, according to Hersh.
Under California Family Code section 2640, also known as the “right of reimbursement” clause, spouses can retain their own contributions to community property assets. That means that if one spouse put down a $1 million down payment on a $5 million house, they are entitled to receive the $2.5 million for the house, plus the $1 million initially put down. The clause can be waived if it is in writing, such as in prenuptial agreements.
“If you’re repping the money side, you generally won’t waive it,” Hersh said. “You want to make sure that they recoup their separate property contributions.”
Divorce, real estate developer-style
Figuring out the real estate question can become increasingly troublesome when a divorce involves a developer or landlord, whose primary business is to build and acquire property.