§ 70.07 FAMILY LAW AND CROSSOVER ASPECTS OF THE HOMESTEAD AND HOMESTEAD RIGHTS
In Washington, the divorce statutes are extensive, but the impact of these statutes on the family homestead is not clearly articulated, and the case law fleshing out the relationship can be difficult to understand. "In the absence of a specific statutory provision for disposing of homesteads in a divorce proceeding, the matter will be governed by the general rule or statute governing the disposition of the property of the parties generally." 24 AM. JUR. 2D Divorce and Separation § 869 (citing Closson v. Closson, 30 Wyo. 1, 215 P. 485, 29 A.L.R. 1371 (1923)).
[1] Asserting a Homestead in the Family Home in Divorce Proceedings
Homestead rights can be negatively impacted in several areas of family law. One area of particular difficulty is the likelihood that the family home may be awarded to one party with an offsetting lien to the other, or the family home may be ordered sold. When the family home is ordered sold and the homestead declarant has been removed from the home in advance of sale, the bankruptcy court has declined to allow the former owner a homestead exemption because there is no way the declarant is legally able to return to the property and claim it as a primary residence. Wilson v. Arkison (In re Wilson), 341 B.R. 21, 25 (B.A.P. 9th Cir. 2006).
In In re Jefferies, 468 B.R. 373, 378 (B.A.P. 9th Cir. 2012), the reimbursement for debtor's share of the residence in a divorce was not considered the "proceeds of voluntary sale" of a homestead because the proceeds were paid after a ruling in a divorce proceeding. The bankruptcy court specifically stated that the issue was one of timing, with the husband trying to assert his homestead exemption after the divorce court ordered his wife to pay him. Thus, the court ordered him to transfer the home to the wife. The court stated that because the divorce order requiring payment of the equalizing judgment to the debtor was not the product of a voluntary sale, and preceded the bankruptcy filing, Mr. Jefferies could not protect the proceeds of sale using his homestead exemption even if he intended to use the proceeds for purchase of a primary residence. Id. at 376.
A seemingly opposite result occurred in In re Good, 588 B.R. 573, 578 (Bankr. W.D. Wash. 2018), where spouses were not divorcing. The bankruptcy court refused to impose a "sunset provision" on proceeds of the trustee's sale of a family home, when a joint Chapter 13 petition was filed by a husband and wife and the trustee insisted on retaining the funds until such time as the couple found another home in which to invest the proceeds. Even though the court agreed that the trustee's sale was a forced sale like the sale in the Jefferies case, the court did not allow the trustee to keep the funds or impose a one-year sunset provision on the proceeds of the sale, holding that the court would not read such a provision into RCW 6.13.030. The statute was later clarified to provide that sales in bankruptcy are "forced sales" and that proceeds of forced sales will not be subject to the sunset provision.
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Caveat: Counseling a divorcing party can be rife with difficulty, as creditors and courts will be looking for fraud if a debtor is trying to avoid his or her liens. A homestead will not be permitted when a transfer may be viewed as a means of defrauding debtors. In Clayton v. Wilson, 168 Wn.2d 57, 61-63, 227 P.3d 278 (2010), a husband was accused (later convicted) of molesting a child whose parents rented property from him and his wife, and the husband would molest the child before paying him for the yard work performed on community property. Id. at 61. The husband and wife quickly entered into a property settlement agreement that awarded wife 90 percent of the community assets. The victim sued the community and alleged the property settlement agreement was fraudulent. Id. at 69-73. The court set aside the marital property division as fraudulent and awarded significant damages against the community, which the court held liable under the concept that the community may be held liable for intentional torts committed in management of the community property, even if not seemingly for a community purpose. Id. at 63. In a later action unpublished by the Court of Appeals after remand, the wife asserted a homestead against all real property awarded to her, asserting she occupied her home and the four lots surrounding her home as her homestead, including lots previously rented to others. Clayton v. Wilson, 198 Wn. App. 1043, No. 75010-1-I, (Apr. 17, 2017) (subsequent appellate history printed in unpublished decisions). The court allowed the wife a homestead, but not against all four lots, and allowed the victim to execute his
