Two Rules Decide a California Buyout, and Most People Learn Them Too Late
Program and regulatory figures verified October 11, 2026. Details change; confirm your scenario with us.
We are a lender, not a law firm. What follows is what the agency guide and the California codes actually say, with the dates we read them, so your settlement is built on the real rules.
★★★ Rule one: the loan is cheaper than you were told — conditionally
Most people are told that taking cash out to pay a former spouse is a cash-out refinance. On a divorce buyout, usually it is not. Fannie Mae Selling Guide B2-1.3-02, verbatim:
"A transaction that requires one owner to buy out the interest of another owner (for example, as a result of a divorce settlement or dissolution of a domestic partnership) is considered a limited cash-out refinance if the secured property was jointly owned for at least 12 months preceding the disbursement date of the new mortgage loan. All parties must sign a written agreement that states the terms of the property transfer and the proposed disposition of the proceeds from the refinance transaction."
★★ That classification is not cosmetic. Limited cash-out and cash-out are priced differently and treated differently on loan-to-value. ★★★ But it comes with two conditions, and both of them are commonly missed. The rule in full.
★★★ The two conditions, and why they trip people
- ★★★ Twelve months of joint ownership, measured to the disbursement date. Not the application date. Not the length of the marriage. Not occupancy. If you took title together eight months ago, you cannot reach this treatment by closing faster. You reach it by waiting. What that does to a settlement timetable
- ★★★ A written agreement signed by all parties covering both the terms of the transfer and the disposition of the proceeds. A judgment that awards the house but says nothing about where the refinance money goes does not satisfy that on its face. What the agreement has to cover
★★ Both are worth raising with your attorney before anything is signed, because both are cheap to get right in a draft and expensive to fix afterwards.
★★★ Rule two: Proposition 13 survives the transfer
This is the California-specific one, and for a long-held home it is often worth more than the rate. Rev. & Tax. Code § 63:
"Notwithstanding any other provision in this chapter, a change of ownership shall not include any interspousal transfer, including, but not limited to: … (c) Transfers to a spouse or former spouse in connection with a property settlement agreement or decree of dissolution of a marriage or legal separation, or (d) The creation, transfer, or termination, solely between spouses, of any coowner's interest."
★★★ No change of ownership means no reassessment. The assessed value stays where it was, which means the property tax escrowed into your monthly payment stays where it was too. In a state where a home bought in the 1990s can carry an assessed value a fraction of what it is worth today, that is the difference between a payment that works and one that does not. The statute, and what we are not claiming.
★★ The number people get wrong about their own down payment
If you put separate money into the house, before the marriage, an inheritance, a gift, Fam. Code § 2640 reimburses it. But read how:
"The amount reimbursed shall be without interest or adjustment for change in monetary values and may not exceed the net value of the property at the time of the division."
★★★ A $60,000 down payment made twenty years ago comes back as $60,000. Not sixty thousand grown with the house. People plan around the wrong number constantly. ★ Note too what counts: downpayments, improvements and principal reduction, expressly not interest, maintenance, insurance or taxes. The whole section.
★★ And a widely-published California rule that is simply dead
You will still read that California spouses must live in separate residences to be separated. Fam. Code § 70(c) says the Legislature intended "to abrogate the decisions in In re Marriage of Davis (2015) 61 Cal.4th 846 and In re Marriage of Norviel (2002) 102 Cal.App.4th 1152."
★★ Separation can occur under one roof. It needs an expressed intent to end the marriage and conduct consistent with it. That matters to a mortgage file because the date of separation is where community acquisition stops. The current test.
★★ California is the one state where "check your county" is real advice
58 counties, nine different conforming loan limits. 10 counties at the national ceiling of $1,249,125, 41 at $832,750, and seven on tiers in between. The full map.
★★★ And one metro breaks it: the typical San Jose home at $1,527,731 is above the highest conforming limit in the country. A buyout of a typical Silicon Valley house is already jumbo: where the agency rule at the top of this page does not reach. What that changes.
★ What we are and what we are not
We are a lender. We are not a law firm, we do not represent anyone in a dissolution, we make no attorney referrals, and we take no position on how your property should be divided. We publish what the agency guide and the codes say so that the financing half of your settlement is built on something checkable.
Mike Certo, NMLS #260555. (480) 296-6513 · mcerto@cfmtg.com.
Frequently asked questions
Is a divorce buyout refinance a cash-out refinance in California?
Usually not. Fannie Mae Selling Guide B2-1.3-02 treats a transaction requiring one owner to buy out another, for example as a result of a divorce settlement, as a limited cash-out refinance if the property was jointly owned for at least 12 months preceding the disbursement date and all parties sign a written agreement stating the terms of the transfer and the proposed disposition of the proceeds.Does a divorce buyout trigger Proposition 13 reassessment in California?
No. Revenue and Taxation Code section 63 provides that a change of ownership does not include any interspousal transfer, and names transfers to a spouse or former spouse in connection with a property settlement agreement or decree of dissolution, and the termination solely between spouses of a coowner's interest. Because there is no change of ownership, the assessed value and the escrowed property tax do not jump.Do I get my down payment back in a California divorce?
Family Code section 2640 reimburses separate-property contributions to the acquisition of community property, defined as downpayments, improvements and principal reduction but not interest, maintenance, insurance or taxes. The reimbursement is made without interest or adjustment for change in monetary values and cannot exceed the net value of the property at division.Do California spouses have to live apart to be separated?
No. Family Code section 70 requires a complete and final break evidenced by an expressed intent to end the marriage and conduct consistent with that intent, and subsection (c) states the Legislature's intent to abrogate In re Marriage of Davis (2015) and In re Marriage of Norviel (2002). Separation can occur while both spouses remain in the home.What is the conforming loan limit in California?
It depends on the county. California has nine different limits across its fifty-eight counties for 2026: ten counties including Los Angeles, San Francisco and Santa Clara are at the national ceiling of $1,249,125, forty-one are at the $832,750 baseline, and seven sit on intermediate tiers.Mike Certo · NMLS #260555 · Cornerstone First Mortgage NMLS #173855 · Equal Housing Lender. Educational content about mortgage financing during and after a divorce. Not a loan commitment, and not legal, tax or financial advice. Cornerstone First Mortgage is not affiliated with, endorsed by or acting on behalf of any California court, county assessor, tax collector or government agency. Cornerstone First Mortgage is a lender; it is not a law firm, does not represent any party to a dissolution, does not make attorney referrals, and takes no position on how property should be divided. California property-division rules are set by the Family Code and applied by the courts; the reassessment exclusion in Revenue and Taxation Code section 63 is administered by county assessors. Agency requirements described here are Fannie Mae Selling Guide provisions current as of the date shown and are subject to change and to lender overlays. Housing market figures describe the twelve months to August 2026 and are not a forecast. All loans are subject to borrower, property and program qualification.