In divorce, real property is either sold to an outside third party or transferred to one party pursuant to the couple’s “equitable distribution” (asset division) and memorialized in a Separation Agreement or Stipulation of Settlement Agreement (the “Settlement Agreement”). In New York, marital property is divided “equitably” (or fairly) between the spouses, which may or may not be 50/50, depending on the circumstances. The court will follow certain factors in determining equitable distribution in accordance with New York State Domestic Relations Law Section 236 B. In dividing assets, property is identified, classified as marital or separate, and then given a value. If one party purchased the property prior to the marriage, that property may be separate and not subject to distribution. If the parties purchased the property during the marriage, no matter whose name is on the title, it is typically classified as marital property, unless there is an agreement in place stating otherwise.
In mediation, the parties (not a judge) determine, among other things: property identification/classification, valuation of said property, equitable distribution, and whether it is beneficial to the family to list the property for sale to a third party or transfer the marital home to one party. In order to make these important decisions and ensure a successful transfer, it is recommended the parties consult with and retain experienced industry professionals, such as a real estate attorney, realtor(s), a mortgage broker/loan officer, a tax professional (preferably a certified public accountant), and a home organizer, if necessary.
Selling the Marital Home
The marital home, typically the most valuable and emotionally charged asset held by the couple, is a particularly difficult property to divide and/or part with in divorce, especially if minor children are involved. In mediation, when the marital home is to be sold, the parties make their own decisions regarding important factors such as: the timing of the sale, the listing price/reductions, which agent to use, and how to disburse net funds. The parties mediate the timing of the sale based on a number of factors, which may include financial ability, the date of the youngest child’s graduation from high school, emancipation of the youngest child, or a set number of years after the divorce and/or separation. Once it is time to sell, the listing price may be determined in a number of ways, including: by the parties themselves, by a trusted realtor’s price opinion, using an average of three realtors’ opinions, or by a professional certified appraisal. While a professional appraisal may cost a few hundred dollars, it is the most accurate and neutral option, commonly accepted and/or required by most judges. The parties may also agree which marital debts, if any, may be satisfied out of the net proceeds of the sale. In mediation, the parties, not a judge, make all of these important decisions.
Transferring the Marital Home to One Party
Transferring the marital home to one of the parties is always easier if there is no mortgage on the premises – but how often does that happen? If there is no mortgage, parties may use a simple deed and transfer forms, or other required documentation (see my Blog, “HOW IS PROPERTY TRANSFERRED IN DIVORCE?” dated July 6, 2019) to transfer property. Couples may also use a trust instrument to transfer the property, but a consultation with an estate-planning attorney is required to determine the necessity based on the circumstances and to establish the trust.
When there is a mortgage on the home, the situation is a little trickier. The present mortgage on the house must be satisfied prior to a sale or transfer to anyone. Most, if not all, loans today contain an “alienation” or “due on sale” clause, which allows the lender to require payment due in full (on the entire balance), owed when title is transferred or property is sold. In divorce, the mortgage might have to be refinanced and transferred into the name of the party taking title, which is commonly difficult for one party to get approval on and manage financially long term. If the party staying in the home cannot refinance on their own, many issues arise for both parties. If the party staying cannot “buy out” the other spouse right away, a monetary payout of a specified amount when the house is sold may be mediated in asset distribution, but this does not eliminate the other party’s risk and obligation on the mortgage and note. Protective language can be incorporated into their Settlement Agreement, but risk remains for both parties. Parties may also use a confession of judgment on a certain amount to be filed simultaneously with the deed to minimize risk. Additionally, there are tax implications in selling real estate, particularly when the marital home is transferred to one party and then sold later. The individual who is left owning the home and selling later ends up with a greater tax burden than if both parties were selling the same property together. On the upside, new title insurance will not be necessary in a transfer from two parties to one of those parties, because if one owner retains ownership the title insurance continues under that one owner’s name. Retaining tax and real estate professionals, including a reputable and creative mortgage broker or lending professional, is extremely important under these circumstances.
Please Keep in Mind
As a Mediator-Attorney, Ms. Camlet is able to mediate the issues, draft and finalize the Settlement Agreement and divorce documents, file the appropriate divorce paperwork and act as the real estate attorney for the transfer of the property. She can also provide clients with strong referrals for experienced and reputable realtors, mortgage lenders and brokers, appraisers and tax professionals.