Dividing the marital residence in a divorce is complicated by the parties’ sentimental attachment to the house and by the logistical hurdles people have to jump through when dealing with the house. This blog is the first of three discussing issues to consider when deciding what to do with the marital residence. This particular blog discusses what to do if you and your spouse are selling the marital residence. The second in the series will discuss issues related to transferring the house to one of the parties. The third will discuss issues to consider when both parties are going to keep the house and share it after the divorce is final.
When parties divorce, the three basic options for handling the marital residence are to sell it, award it to one of the parties, or allow the parties to keep it as joint owners after the divorce concludes. Sentimental issues and practical considerations can become intertwined in ways that make it difficult to make a decision that actually makes sense. This blog will attempt to outline the most important issues parties need to consider when they are either agreeing on what to do with the house or arguing to the court regarding what they want the court to order about the house.
If the parties cannot agree on what to do with the house or if the court cannot come up with a reasonable way to divide the house between the parties, the court can order the house be sold (unless the house is one party’s separate property instead of marital property). Unfortunately, agreeing or ordering that the house be sold creates a whole series of additional issues that must be addressed.
First, the agreement or order needs to address who is going to pay expenses for the house until it is sold. That includes the mortgage, utilities, and insurance. It also includes any repairs that may be needed to ready the house for sale. The parties should also sort out whether those expenses will be repaid in any way to the spouse who pays them during the pending sale. In other words, will the spouse who is making the repairs or paying the mortgage going to receive any of those funds back out of the sale proceeds?
Second, there need to be provisions for how the parties will handle the sale itself. Who will they hire to sell the house? What will the list price be? How will they decide whether to accept an offer? When will the house be listed? If one of the parties is still living in the house until it is sold, when can it be ready to sell? How much time does the spouse in the home need to move out, and when would it be available for a new buyer to take possession? It is also a good idea to include language requiring the spouse still living in the house to keep it in show-ready condition and to accommodate any requests for access to the home to show it to potential buyers or have open houses.
Third, the parties need clear orders regarding what will happen with the sale proceeds, if any. At the closing, it will be important to know whether one spouse is keeping all the equity or if the proceeds are being divided between the parties in some way. Sometimes other debts (like attorney’s fees, debts to the IRS, or credit card debts) will be paid directly out of the home proceeds before paying the parties. If the parties cannot agree, one option is to have the funds placed in trust until an order is issued. That is often used if the house is sold before the decree is issued or before the permanent orders hearing. If there are not going to be any proceeds because the debt encumbering the house is greater than the anticipated sales price, then the parties also need agreements regarding how the shortage will be paid and who will be liable for the amount they will need to bring to the closing.
Finally, the parties also need to make sure that they have addressed all the potential tax implications related to the sale of the home, including who will claim any capital gains, who will claim the mortgage deductions, etc. It is a very good idea to speak with a CPA before agreeing to anything in order to make sure you understand your rights and risks.
If you need any legal assistance navigating the sale of your home as part of your divorce, an attorney at The Harris Law Firm would be glad to help. We also encourage you to check out Parts 2 and 3 of this three-part blog about the marital residence.