Real Estate Watch: Dividing things up in a divorce

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With three of five marriages ending in divorce, the question arises, what to do and how to handle your primary residence as well as any investment properties if your marriage is ending. 

Most important in the scheme of things is how to sell and liquidate them and distribute the proceeds equitably.  First and foremost, you will need to determine the value of each domicile.  Hiring a broker to do a broker price opinion, which many attorneys and courts will recognize and accept, will be the first step.    

By doing this, both parties can potentially save a good amount of money.  Many times the appraisal will be free, but there would be a reciprocal agreement that you would list with the company, as a benefit for the appraisals.  This would be a win/win situation for everyone involved  and minimize the stress.   Both parties could hire separate appraisers, as well as hire separate real estate brokers to sell their primary home and investment properties.  But if you are able to sit down and discuss your needs and wants in the beginning with one individual who could do the proper job for both parties, wouldn’t that be optimal? 

I happened to be selling a home in Seaford and  representing both  ex-husband and wife (and dual agency).   Although it took some hand holding, convincing and most importantly caring about both their specific needs and wants and their fears, concerns and questions, we were able to accomplish the impossible and come to a reasonable agreement.  Nobody cares how much you know, until they know how much you care.  We care and performed accordingly.

Also, this will have potentially saved each person thousands of dollars of continued lawyer’s fees, had I not stepped in and listened to and acted in such a manner; that both were assured by me, that I would do my best to find a purchaser, whether  from an outside company or my own.  It just happened, three weeks ago, I found buyers, from our company website, who came out and viewed the home and fell in love with it at first sight.  By the time you read this article, the inspection will have been completed and hopefully the contract will have been signed by the purchaser.  Another win/win situation.

When you hire an appraiser, he or she will determine the value of the home and any additional real estate jointly owned and then you will have a fairly accurate understanding of the dollar value in today’s market place.  Most important, if one spouse owned the home before the marriage took place, then any appreciation that  occurred after the marriage is generally split 50/50. 

I am not providing legal or financial advice, so I would talk to your divorce attorneys as well as a financial planners (we have several of each),  to strategize and plan the most logical and practical way to maximize what each party will receive, when the home is sold and the divorce is completed.  Usually, while you are married, when you sell your primary residence (not vacation homes) you are allowed a $500,000 deduction, added to your original purchase price, plus any capital (permanent improvements to your property, like landscaping, expanding the home, new roofs, windows, etc.).  Here is an example:

Selling price: $750,000

Subtract original purchase price: -$250,000

Capital improvements (verifiable)  -$150,000

Allowed deduction while married: -$500,000 ($250,000 when single)

This example shows that there would be no long-term capital gains tax.  Obviously, everyone’s situation will be  different, so consult your financial planner or your tax attorney or both for the most accurate answer.

Please note,  it is extremely important to make sure you gather all your verifiable receipts for all those improvements, assuming you kept them, in case of an audit from the I.R.S.  Then you subtract that total from the sale price, (assuming you will be making a profit, if you have had the home for 15 to 40 years and have substantial equity).  Also, assuming you haven’t remortgaged  your home for other reasons and  have no equity.  

The capital gains can be from 15 to 23.8 percent of the profit gained from the sale after all the allowable deductions.   There are various situations, such as one spouse dying, that could alter the capital gains. 

Assuming there are two attorneys, communication between the divorced or divorcing parties and their lawyers is critical and crucial to keep a line of communication open so everyone is on the same page during the sale process.  Nothing should be hidden and a professional dialogue, via phone calls and emails, allows those involved to be comfortable and at ease, as well  as feeling that both of you are being taken care of, while the marketing and sale process takes its course. 

Both attorneys need to feel that they or their clients have hired the best appraisers and/or brokers to handle this delicate and many times difficult situation.  

Jeff Landers is a divorce financial adviser and is the author of a book he wrote in 2013, “Divorce: Think Financially, Not Emotionally – What Women Need to Know About Securing Their Financial Future Before, During and After Divorce.’’  His advice is priceless and the book is an excellent read for those either planning a divorce or in the process of getting one.  It will help those without enough knowledge or who want to cut the costs of the divorce, by supplying critical  information about the difficult and tumultuous process that many times occurs.  

My feeling is that a divorce should and could be a win/win situation, if both parties realize that the attorneys many times are receiving fees every time either the husband or wife get on the phone, a letter is sent out and for every moment in court.    The longer the divorce settlement takes the more you are both paying.  The real shame is that it is reducing what both of you will receive in the end.  For whatever reason or reasons you both are parting ways, try to be civil and smart and divide your assets and be done with it and begin a new page in your lives.

 But hire an expert to appraise your real estate, so you both receive the most return on the assets.  My advice is to sell the home while you are married, if feasible, and take a $500,000 deduction, instead of just a $250,000 deduction as a single individual.  It may just work out the same, but again, I would get the advice of legal counsel and a financial planner to maximize the dollars that you will receive when all is said and done.   New York has an “equitable distribution law”  that determines what was pre-marriage and after marriage property.  Most important, if you have children who are not of legal age, alimony and child support will come into play depending on who is the bread winner and most important, the agreed upon settlement. 

A very economical route to take if both parties can agree, is a mediator, who many times is an attorney.  They will go over all the issues and make recommendations.  You both will still need attorneys, but the savings can be substantial and in this fashion, you both will hopefully end up with more money and less headaches.  Try to be cognizant of the fact that the equity in your home for many couples is the largest asset that you have shared  while married.  So both of you want to maximize the dollars you will receive when it is sold and the divorce decree is agreed upon and signed by both parties and the court finalizes the settlement.  No offense to matrimonial attorneys, but both husband and wife can save a huge amount of money, stress and worries by hopefully understanding and trying to agree to some basics in the divorce, and again hire a mediation advisor (your local bar association can provide some excellent choices) before you see your attorneys, so your bill could be reduced drastically and your savings will stay in both of your pockets. 

 

Philip A. Raices is the owner of Turn Key Real Estate in Great Neck. He can be reached by email at HouseBroker1@GMail.Com (my other email server has an issue, so temporarily email me here) or by cell at (516) 647-4289 to answer questions.   To search for property, see what your home is worth or homes that have sold in your area, go to:  WWW.Li-RealEstate.Com   If you desire a free, no obligation and no strings attached comparative market analysis for the value of your home, call me.

 

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