Today I'm answering the question, “What is the homestead exemption law in California?”
Hi, I'm Greg Ashcraft. I'm an estate planning attorney here at the Ashcraft firm and today I'm going to be talking to you about the California homestead exemption law and some changes that have recently come to pass and I'm going to do it on my whiteboard.
What is the homestead law in California? First, I'm going to go over the old law, and then I'm going to talk to you about the new law. Finally, I’m going to talk to you about what this means for you.
The old law said that most people get a seventy-five thousand dollar exemption and what that means is— and this is again it's a seventy-five thousand dollar exemption on your primary home, the home that you live in. If the home that you live in is worth four hundred thousand and you had a two hundred thousand dollar loan then you have two hundred thousand dollars in equity. If you try to protect that property, you normally have a seventy-five thousand dollar exemption. You still have one-hundred and twenty-five thousand dollars of equity here unprotected. Now let's say that instead, you qualify for this larger exemption. If you're over the age of sixty-five or you're disabled, then instead you have one-hundred and seventy-five thousand dollars of exemption you still have twenty-five thousand dollars hanging out that you couldn't protect. That’s the old law.
The new law, though, the minimum amount that you can protect is three hundred thousand dollars. In the last example, I gave you everything would be protected under the new law. But lets up the stakes so let's say we have a million-dollar home and we have a five-hundred thousand dollar home loan on it. We have five-hundred thousand dollars in equity so this new law says at minimum we could protect three-hundred thousand dollars. Unfortunately, we still have two-hundred thousand dollars hanging out there that are not protected. But when do we hit this maximum? It depends on which county your residence resides in so let's say that you’re in Riverside County. If you're in the last example that I looked at some numbers and it says the median house sold in Riverside County is four-hundred and sixty thousand dollars so we don't quite hit the maximum, but we're in between the minimum and the maximum because we can protect that amount in equity so here we have four-hundred and sixty-thousand dollars that we can protect, which means we still have forty-thousand dollars hanging out, unprotected.
Now, let's say that this million-dollar home is in San Diego county. if you're talking about San Diego County the last I checked the median home sold is six-hundred and forty thousand dollars, we run up to the maximum here so we’re over the maximum so we can exempt up to six-hundred thousand dollars. That means we don't have any unexempt assets here so this homestead law will protect all of the equity that you have in this home and even if this goes up to one million, one hundred thousand dollars. We can still protect it. Now, this number actually has a little asterisk beside it because it goes up. It's indexed for inflation so every year if inflation increases this dollar amount is going to increase as well.
What does this new law mean for you? Let's say that you contacted a bankruptcy attorney in the past and said that you wanted to file bankruptcy. They said you had too much equity in your house. They would make you file a chapter thirteen in that case because there's too much equity in your home. You have to buy back the equity in your house. Now, with the new law, you might actually qualify for a chapter seven bankruptcy, and because you don't have any unexempt assets nothing's unprotected.
What does this mean for asset protection? It means it's much easier to protect your home if there’s some kind of lawsuit. Now, this again, doesn’t apply to all of your property so if you own multiple pieces of property in California it's not going to protect all of them, but it will protect your primary residence.
Again I'm Greg with the Ashcraft Firm. Thank you so much for watching. If you found this informative then please like it and subscribe to us or you can look in our description and find our website to find more good information and possibly schedule a consultation with one of the attorneys.