Real Estate in Divorce: the Good, the Bad, the Ugly

A home can be the greatest single asset of a marriage. But one day, it might also become a point of contention in a divorce, especially given its financial and emotional value.

There are indeed powerful emotions attached to one’s family home. No matter how humble, it is “home” to the kids, the home where they might have taken their first steps, the marks on the door that measure their growth. Naturally, one of the most difficult issues is often what happens to the house the family lives in.

But important decisions during divorce cannot be based purely on emotion. Deciding to keep or sell a house should be made with an impartial mind, cleared of revenge, negativity and envy. Here are a few of the many issues which need to be considered when talking to one’s divorce attorney or financial planner.

Talk to an Attorney or Financial Planner. Before deciding to keep the house, each party should talk to someone who understands money, like a divorce attorney or financial planner. While not always true, it is more likely that wives feel a stronger attachment to a house than husbands do. So, the assumption used here will be that the wife wants the house.

There are a number of additional steps to consider in making it as easy as possible for all parties involved.

#1-Determine the Real Estate Value

Your first step in this process is to hire an appraiser or a licensed real estate professional to determine a value for each piece of real estate that is co-owned by the parties. Other valuation methods can also include using the current Tax Assessed Value- usually not an accurate method to value real estate, but it offers some information.

#2- Determine Your Equity

Equity is the true value of the asset of the property. You get this number by subtracting any loans/liens against the property from the actual real estate value. These loans include mortgages, home equity loans or secured lines of credit.

#3- Determine the Finances

This is different than determining your equity. At this stage, you must calculate the various house-related expenses to factor into your decision to either keep, or sell, your home. These should include large expenses such as mortgage payments, property taxes, insurance, etc. Also add in monthly expenses such as gas, electricity, fuel and water bills. In addition, don’t forget about the exterior upkeep. How much does the landscaper cost? What about snow removal?

And don’t forget to add in extra money for any unexpected repairs or replacements. Will there be enough money put aside if the water heater or the stove needs replacement?

Gather up the bills and compute what the total expenses would be per month. Many people are shocked when they add up these small items and see how quickly the bills can ding their budget.

#4-Determine Marital vs. Non-Marital Equity

You will want to know what percentage of the house belongs to you and also whether the court would order the house conveyed to you or to your spouse. However, practical considerations, not the law, often dictate who gets the house, the terms of the buyout and if the house is sold to a third party.

If you want to keep the house, you will have to “buy out” your spouse, usually through a new mortgage. However, you might not be able to afford a new, larger mortgage. If you can’t afford a new mortgage, the house will most likely be sold and you would be entitled to your share of the equity.

#5- Prepare the Documents

Prepare the documents you will need, including documents of title, receipts, etc. Your real estate agent will use this information to put together a portfolio for you to present to your attorneys.

#6- Dividing the Asset

Once the allocation of assets is determined, you can now discuss a division of each of those assets. In regards to real estate, should the home be awarded to one of the parties, the other party must be compensated for their share of the marital equity. This compensation may take one of several forms- Award of Other Assets, Refinance Mortgage, or Pay Off Over Time.

The home can also be sold, and the proceeds will be divided. The house is an asset, and therefore subject to division.

The State of New York also utilizes equitable distribution. It is a method for distributing property acquired by either spouse upon the dissolution of the marriage, which replaces "common law" principles of property ownership. Prior to the adoption of "equitable distribution" in New York, the state was a "common law property " state. This meant that upon the dissolution of the marriage, the property owned by either spouse was distributed according to the manner in which title was held.

New York is now an "Equitable Distribution State." This means that upon dissolution of a marriage, the court must distribute "equitably" all "marital property" regardless of the manner in which title is held, considering the following factors:

• Income of each party at time of marriage;
• Income of each party at time of commencement of action;
• Property of each party at time of marriage;
• Property of each party at time of commencement of action;
• Duration of marriage;
• Age of both parties;
• Health of both parties;
• Need of custodial parent to occupy or own marital residence;
• Need of custodial parent to use or own household effects;
• Loss of inheritance rights upon dissolution as of date of dissolution;
• Loss of pension rights upon dissolution as of date of dissolution;
• Any award of maintenance;
• Equitable claims to or interest in or direct or indirect contribution to the acquisition of the marital property by the party not having title, including:
  (a) Joint efforts;
  (b) Expenditures;
  (c) Contributions as a spouse, parent, wage earner and homemaker and to the career or career potential of the other party;
• Liquid or non-liquid character of all marital property;
• Probable future financial circumstances of each party;
• Impossibility or difficulty of evaluating any asset or interest in a business, corporation or profession;
• The desirability of retaining the asset, or interest in the business, corporation or profession free from any claim or interference by the other party;
• The tax consequences to each party;
• The wasteful dissipation of assets by either spouse;
• Any transfer or encumbrance made in contemplation of a matrimonial action without fair consideration; and
• Any other factor which the court shall expressly find to be just and proper.

All property acquired by either or both parties during the marriage, is subject to equitable distribution. It does not, however, include property provided for in a written agreement. It also doesn’t include "separate property," which is defined as property acquired before marriage; or property acquired by gift from a party other than the spouse. However, the increase in value of this separate property is marital property to the extent that the appreciation is due in part to the direct or indirect contributions or efforts of the other spouse.

There are a number of options that must be considered when determining how real estate is to be divided in a divorce. That does not always mean that the real estate must be sold.

However, there are times when a party must sacrifice their home in exchange for a chunk of money. They may need find that they need the financial cushion of cash, or that stream of income to survive.

Every person must step back and decide if they are giving up financial security in exchange for a house which might very well become unaffordable when the spousal support stops.

Sometimes it makes sense to sell the family home and downsize to a less expensive house. In most cases, staying in a very large house with sky high heating and air-conditioning costs can be ridiculous.

There are licensed real estate professionals who specialize in working with couples currently seeking a divorce. The courts will ask for additional paperwork, and that real estate agent will be able to guide all parties in the right direction.