YOU HAVE QUESTIONS, WE HAVE ANSWERS!
VIVA ESCROW Q & A SEGMENT
(Real questions sent to us – verbatim!)
QUESTION:
Hi, I saw your article from October (2025) regarding handling a property through a divorce. I have a special circumstance and I need to ask how you would handle this. I am going through a divorce and my ex and I are getting the property 50-50. He doesn’t want it so he wants to sell it to me. But I don’t have enough money to buy him out. Have you seen this and how would this be handled?
ANSWER:
This is a scenario that we did not touch on last month (https://julianatu.com/october-2025-escrow-brief/), but it is rather common. Due to the divorce, one spouse – Party A – is purchasing the other spouse’s – Party B – interest. But if Party A doesn’t have sufficient funds, getting a new loan to finance that purchase is their best bet. In this scenario, the transaction can be handled two ways and it is important that (1) Party A talk to the loan person at the beginning as to which way is acceptable to the Lender, and (2) both Party A and Party B talk to their financial counsel because there may be possible income tax issues and they may need paperwork for income tax purposes. Hopefully, both (1) and (2) coincide!
First way – Do a “refinance” transaction only. This is the simple (and less costly) way. Party A is the Borrower and would qualify for a loan at whatever amount they need to pay to Party B in escrow. Along with Party B completing a Confidential Statement of Information (because he is a current owner and he needs to be vetted), he will sign an Amendment from Escrow that would reflect the payment to him in return for signing a Quitclaim Deed relinquishing his ownership. Party B IS NOT a “Seller” so there is no need for any other paperwork that is normal to a “Seller”. However, there would also be NO escrow Closing Statement to Party B for his income tax purposes. Party A will get a Closing Statement to show her payoff of Party B for her income tax purposes.
Second way – Do a “purchase/sale” transaction for 50% of the interest. This involves more work to all parties (and is more costly), but it is the way our escrow industry CPAs recommend. The “Buyer” is Party A and the “Seller” is Party B. The purchase price is the agreed upon value of the 50% interest and Party A would get a loan for the amount they need for the sale price. As the Seller, Party B is a part of the transaction and he would need to sign all necessary escrow paperwork, including a Grant Deed for his interest in the property. Both parties would get their own final Closing Statements for income tax purposes. The transaction is handled just like a standard purchase and sale transaction, with ONE EXCEPTION: because this is a divorce situation, this Seller would not need to provide a California 593 Withholding Certificate nor a federal Foreign Investment in Real Property Act (FIRPTA) form. Also, we will not need to file a 1099-S to the IRS. All this being said, both Parties will need to confirm this exception with their financial counsel and we would mention that specifically in our escrow instructions.
Again, the second way is the “preferred” way, but either scenario deserves to be fully explored between the Parties, the Lender, and the Escrow to make sure it works in their particular circumstances.
EDUCATIONAL MOMENT:
When there is a divorce and separation of real property assets, financial and/or CPA counsel becomes important and should be considered even BEFORE the Divorce Settlement Agreement is signed.
Let me reiterate: no matter how we do the transaction, in a divorce, the spouse who is relinquishing his interest WILL NOT get a 1099-S and the standard California Withholding Certificate form or a Federal non-foreigner form are not required.
The most important difference between the two types of transactions is as follows: As a refinance transaction, there is no escrow cost to the party getting the money, but he/she WILL NOT get a final closing statement. In a purchase/sale transaction, there will be costs to both parties, but a separate closing statement will be issued to each party to show the costs. Clients must confirm with their financial counsel what type of transaction they want.
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~ Video of the Month ~
Robots are taking over the world… maybe
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~ Quote of the Month ~
What with all the political drama right now….
Those who are too smart to engage in politics are punished by being governed by those
who are dumber.
(Plato)
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California’s new property taxes bills are in your mailbox!
Need a refresher on how California’s property taxes work?
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You Have Questions? We Have Answers!
Juliana Tu, CSEO, CEO, CBSS, CEI, SASIP
Escrow is my FOREMOST language!
Advance Disclosure:
The opinions expressed in this blog are solely the author’s.
Your comments and viewpoints are always welcome.
Info @ VivaEscrow.com