When it comes to asset and property division, one of the key questions family law courts must deal with is: What to do with upside down residences?

With the economy struggling the way it is, many divorcing couples find themselves facing this very same issue, where they own a family residence with the total amount of encumbrances from secured loans exceeding the current fair market value of the residence itself.  The general rule the courts must follow can be found under Family Code Section 2550, which dictates that the court must achieve an equal division of the community property obligations and assets at the time of the judgment; or at a later time if it reserves jurisdiction over an asset in the community estate.

It is also important to note that the trial court’s division of the assets must comply with the statutory provision of the family law act that fairly and reasonably adjusts the relative contributions of the community and separate estates of the parties to achieve substantial justice between the parties under the circumstances.

In attempting to divide the community estate equally between the parties, the family law court has broad discretionary powers in determining the manner in which the community property is divided and the responsibility to affix values of the assets and liabilities to accomplish an equal division.  To comply with the requirements of an equal division of the estate, the court must add all the community assets, deduct all community obligations, and divide residual assets equally.  The whole idea is to establish a mathematically equal division of the community property.

The family law court maintains discretion to order the sale of the community property real estate to achieve an equal division of the community property estate.  The key issue the court faces in this scenario is whether it has the authority to order a sale when only a short sale is possible and in the absence of a short sale, the property will most probably be lost to foreclosure.  This issue can prove especially ticklish for the court when one of the parties requests the award of the property at the present negative value and proves the ability to keep the property out of foreclosure.

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