BILL ANALYSIS
SENATE JUDICIARY COMMITTEE
Senator Ellen M. Corbett, Chair
2007-2008 Regular Session
SB 433 S
Senator Harman B
As Introduced
Hearing Date: March 27, 2007 4
Code of Civil Procedure 3
BCP:rm 3
SUBJECT
Homestead exemptions
DESCRIPTION
This bill would extend the "automatic" homestead exception
to cases where the judgment debtor's separated or former
spouse, but not the debtor himself or herself, resides in
the homestead, until the entry of judgment or legally
enforceable agreement dividing the community property.
BACKGROUND
Pursuant to Section 1.5 of article XX of the California
Constitution, the Legislature is required to protect a
portion of a homestead, and other select property, from
forced sale. Furthermore, the California Supreme Court has
stated that:
The object of all homestead legislation is to
provide a place for the family and its surviving
members, where they may reside and enjoy the
comforts of a home, freed from any anxiety that
it may be taken from them against their will,
either by reason of their own necessity or
improvidence, or from the importunity of their
creditors. [In re Estate of Fath (1901) 132 Cal.
609, 613.]
Thus, existing law provides that a person or family unit
may protect a specified portion of the value of their
(more)
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principal dwelling ("homestead") from being sold pursuant
to a court order to satisfy a debt to creditors. If the
dwelling cannot be sold for an amount that exceeds the
exemption (plus liens and encumbrances on the property
itself), it may not be sold to satisfy the judgment. That
exemption requires either the judgment debtor or the spouse
to (1) reside in the dwelling on the date of the attachment
of the lien, and (2) to continuously reside thereafter
until a court determination that the dwelling is a
homestead.
This bill would extend that protection to cases where the
judgment debtor's separated or former spouse, but not the
judgment debtor, continues to live in the dwelling,
provided that the community property has not yet been
divided. A resolution recommending a substantially similar
version of this bill was approved by the Conference of
Delegates at their 2006 annual meeting.
CHANGES TO EXISTING LAW
Existing law requires the Legislature to protect, by law, a
certain portion of the homestead and other property, from
forced sale. [Cal. Const, Art. XX 1.5.]
Existing law contains both an automatic and a declared
homestead exemption that serve to protect a portion of
equity in a debtor's home from creditors.
[Code Civ. Proc. 704.710 et seq., 704.910 et seq.]
Existing law states that the automatic homestead exemption
applies to the principal dwelling in which the judgment
debtor, or spouse, continuously resided from the date of
attachment of the judgment creditor's lien until a court
determination that the dwelling is a homestead. [Code Civ.
Proc. 704.710.]
Existing law protects dwellings that qualify under the
automatic homestead exemption by:
exempting them from a court ordered sale, provided
that criteria relating to the amount received are not
met; and [Code Civ. Proc. 704.720, 704.800.]
exempting proceeds of a forced lien sale, or the
value received from damage, destruction, or
acquisition for public use, in the amount of the
homestead exemption. [Code Civ. Proc. 704.720.]
SB 433 (Harman)
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Existing law provides that if the judgment debtor and their
spouse reside in separate homesteads, only one of the
homesteads is exempt. [Code Civ. Proc. 704.720(c).]
Existing law states that "spouse" does not include a
married person upon an entry of judgment of legal
separation, unless those persons reside in the same
dwelling. [Code Civ. Proc. 704.710.]
This bill would entitle a judgment debtor, not currently
residing in the homestead, to an automatic homestead
exemption if their separated or former spouse continues to
reside and exercise control over possession of the
homestead. This bill would end that entitlement upon the
entry of judgment or other legally enforceable agreement
dividing the community property between the judgment debtor
and the separated or former spouse, or as specified by
court order.
COMMENT
1. Stated need for bill
According to the author, when spouses decide to either
separate, or to seek a divorce, one spouse often moves
out, while the other continues to reside in the family
residence. Pursuant to Section 704.710 of the Code of
Civil Procedure, the automatic homestead exemption only
applies when the judgment debtor, or spouse, has
continuously resided in the dwelling from the time of
attachment of the creditor's lien to the court
determination that the dwelling is a homestead. The
author maintains that:
. . . the "out-spouse" loses his or her
entitlement to an exemption . . . upon entry
of a judgment of legal separation because they
are no longer physically living in the dwelling.
In many cases, the division of community property
does not occur until well after entry of a
judgment decreeing legal separation or
dissolution of the marriage. It is unfair to the
spouse that is not residing in the property to
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have their homestead rights terminated even
though they continue to have a community property
ownership interest in the dwelling. This result
is particularly unfair where the judgment debtor
has vacated the property in order to avoid
physical abuse.
2. Implications of expanding homestead protection
By expanding the scope of existing homestead protections,
this bill would include certain judgment debtors, whose
separated or former spouse lives in a family residence,
within existing automatic homestead provisions. As the
bill's extension would only apply where no entry of
judgment or other enforceable agreement had divided the
community property, the effect of the bill is to allow
the continued homesteading of the debtor's interest in
the property, even when the debtor no longer resides in
the property.
While the proposed extension would allow otherwise
ex-homesteads to qualify for protection, reducing
recovery by judgment creditors, that extension of the
homestead appears appropriate. Other than the
dissolution of marriage, or legal separation, the
judgment debtor's dwelling would have qualified under the
automatic homestead exemption. Prior to division of
community property, the judgment debtor would likely have
a substantially similar interest in the residence as to
when the parties were married.
a) Proposed extension would give judgment debtors more
flexibility to move out of shared dwellings
Under current law, for a recently separated or
divorced judgment debtor to retain their automatic
homestead exemption, that debtor must continue to
reside in the dwelling until a court determines that
the dwelling is a homestead. [Code Civ. Proc.
704.710(c).] That exemption, a minimum of $50,000,
would be a valuable incentive for the debtor to remain
in the residence, despite desiring to move away from
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their actual or former spouse. Thus, if a victim of
abuse decides to seek a divorce, and move out of the
family residence to distance themselves from the
abuser, that victim may lose his or her homestead
exemption upon the dissolving of the marriage. The
author notes that that result is "particularly
unfair," when the individual still retains a community
interest in the dwelling. Once the community property
has been formally divided, SB 433 would,
appropriately, cease the automatic homestead of the
residence where a former spouse resides.
Thus, the effect of SB 433 would be to allow judgment
debtors to move out of shared homes, retain the
homestead exemption in the form of the former
residence, where appropriate, and to seek dissolutions
of marriage or legal separations without concern of
losing that exemption prior to the division of
community property. These implications would give
judgment debtors more flexibility to either remove
themselves from an abusive environment, or family
residence, when appropriate.
b) Suggested amendment to prevent a judgment debtor
from claiming multiple homesteads
The sponsor maintains that, consistent with existing
law, this bill is not intended to allow a judgment
debtor to claim multiple automatic homestead
exemptions. Supporting that assertion, the sponsor
cites Section 704.720 (c) of the Code of Civil
Procedure, which states that when a "judgment debtor
and [his or her] spouse . . . reside in separate
homesteads, only the homestead of one of the spouses
is exempt and only the proceeds of the exempt
homestead are exempt." Provided that the author
accepts the suggested amendment in Comment 4, "spouse"
would include a separated or former spouse, arguably
applying Section 704.720 (c) to the proposed
exemption.
Despite that subsection, the new subsection proposed
by this bill would state that the "judgment debtor
continues to be entitled to an exemption under this
article . . . " in the above described situation. In
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order to remove any ambiguity as to whether a judgment
debtor may claim multiple automatic homestead
exemptions under the proposed new subsection, the
following amendment is suggested.
Suggested amendment:
On page 2, line 19 after the period, insert:
This subdivision is subject to subdivision
(c).
3. Expansion would only apply to automatic homestead
exemptions
In contrast to a declared homestead, the automatic
homestead exemption extended by this bill applies absent
the recording of a homestead declaration with the county
recorder. [See generally Code Civ. Proc. 704.910 et
seq., 704.710 et seq.] Generally speaking, a declared
homestead protects a dwelling in the case of a voluntary
sale while an automatic homestead protects a dwelling
from a forced sale. [Amin v. Khazindar (2003) 112 Cal.
App. 4th 582, 589.] In comparing the two exemptions, the
U.S. Bankruptcy Court for the Northern District of
California noted that:
The declared homestead and the automatic
homestead are separate and distinct protections
that operate differently. The declared homestead
and the automatic exemption each confer different
rights on the homesteader, and there is no
overlap between these rights. One may have rights
under the declared homestead law, or rights under
the automatic exemption law, or both, or neither.
[In re Mulch (Bankr. D. Cal. 1995) 182 B.R. 569,
573.] (citations omitted)
Thus, while SB 433 would only extend the automatic
homestead exemption, that extension alone appears
appropriate as the two homestead protections are separate
and distinct.
4. Amendments required to correct drafting errors
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As initially drafted by the Orange County Bar Association
and recommended by the Conference of Delegates, this
proposal would have been placed in Section 704.710 of the
Code of Civil Procedure. That section contains, among
other things, definitions and exceptions for "homestead"
and "spouse," as used in relation to the homestead
exemption. Those definitions limit a homestead to a
dwelling occupied by either the judgment debtor or their
spouse, and specifically states that separated spouses
living apart are not included within the definition of
spouse. In order to carve out a narrow exemption to both
of those definitions where the judgment debtor and their
former or separated spouse live apart but have not
divided the community, the language approved by the
Conference of Delegates began with "[n]otwithstanding any
other provision of this section . . ." By using
"notwithstanding," that language carved out an exception
without going through and extensively modifying the
definitions.
In contrast, the introduced version of SB 433, as drafted
by Legislative Counsel, removed the word
"notwithstanding" and moved the substantive language to
Section 704.720, which outlines the general scope of the
automatic homestead exemption. While avoiding the use of
"notwithstanding" may be preferable to avoid unintended
consequences, where appropriate, the effect of removing
that language was to create an exemption that could never
work due to the definitions of "homestead" and "spouse."
Both of those definitions expressly foreclose allowing an
automatic homestead in the situation proposed in this
bill.
Accordingly, the sponsor agrees that an amendment is
appropriate to effectuate the intent of this bill. While
every reference to spouse within the article could be
altered to include those within the scope of this bill,
that would require amending various code sections,
potentially confusing the existing statute. The simplest
and most efficient solution is to amend the proposed new
subsection with a statement stating that notwithstanding
the definitions of spouse used in the article, "spouse"
may include a separated or former spouse consistent with
the added subsection.
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Suggested amendment :
On page 2, line 19 after the period, insert:
Notwithstanding subsection 704.710(d), for purposes of
this article, "spouse" may include a separated or former
spouse consistent with this subsection.
While the article relating to declared homesteads
contains several references to the article on automatic
homestead exemptions, amended by this bill, this bill
will not affect those references.
Support: None Known
Opposition: None Known
HISTORY
Source: Conference of Delegates of California Bar
Associations
Related Pending Legislation: None Known
Prior Legislation: SB 804 (Machado, Chapter 64, Statutes of
2003), increased the homestead exemption for
money judgments from $125,000 to $150,000
for senior citizens and disabled
individuals, as specified.
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