Selling the marital home in a New York divorce

In a New York divorce, the house is usually the largest asset the two of you own, and often tied to the largest debt. It’s also the thing two people in conflict have to agree on most often: the broker, the price, the repairs, the offers, the timing. And it’s frequently saved for last, used to equalize other issues in the settlement. That creates a lot of risk.

What follows is the general shape of a sale in New York, and some of the issues that tend to come up. Every divorce case involving real estate is different. The specifics, and how to handle the divorce real estate issues in your case, are where specific subject matter expertise, training and experience matter most.

↓ See the flowchart: how a marital home is generally sold in a New York divorce

The flowchart is general. The dashed boxes are the turn-offs. Your case may not follow this order.

The Automatic Orders freeze the house

When a divorce is filed in New York, Automatic Orders come with it. They bind the spouse who filed as soon as the papers are filed, and the other spouse once served. From then on, neither of you can sell, transfer or mortgage property, real estate included, without the other’s written consent or a Court Order (DRL 236(B)(2)(b)). That applies even when the house is in one name only.

In practice, a listing taken from one spouse alone in the middle of a divorce usually creates more problems than it solves.

Marital or separate, and what’s owed against it

New York treats property acquired by either spouse during the marriage as marital property, whatever name is on the deed (DRL 236(B)(1)(c)). Property owned before the marriage, inherited, or given by someone other than the spouse is generally separate (DRL 236(B)(1)(d)), though growth in its value from the other spouse’s contributions can still be marital. The value questions underneath them are where I come in.

Divorce results in the division of both the asset value and the debt. A mortgage, a home equity line one spouse drew on, a lien or a judgment can change the math completely. That’s particularly important in a buyout, or where one spouse has encumbered the property, directly or otherwise.

The court sets the valuation date, anywhere from the day the case was filed to the day of trial (DRL 236(B)(4)(b)). So the number that matters may be a past value, not today’s. I prepare written valuations as of a past date as a separate, paid service.

Keep it or sell it

A buyout

One spouse keeps the house and pays the other for their share of the equity, usually through a refinance. It sounds simple. In practice it depends on whether the spouse keeping it can qualify, on a value both sides can rely on, and on the marital debt tied to the house. Taking a name off the deed doesn’t take it off the mortgage (only a lender can do that). A transfer between spouses under a divorce doesn’t require a property condition disclosure (Real Property Law 463). I can help you evaluate and structure a buyout before it’s agreed to.

A sale

The house goes on the market, and the proceeds are divided under your agreement or the court’s judgment. That’s most of this guide.

A deferred sale (delayed or postponed)

A delayed or postponed sale means the house is kept and sold later, sometimes years later. I usually advise against it. It keeps you financially tied together after the divorce, it can make it harder for either of you to finance your next home, and it depends on cooperation from someone you’ve just finished litigating against. There are exceptions, and they’re rarer than people expect. There’s a one-minute video on it below.

Note that the deed and the mortgage may not be in both names. Marital assets can be titled to one spouse, and marital debt can be in one spouse’s name too. That usually needs cleaning up, whichever way you go.

Sometimes a Court Order or Stipulation creates the problem

Two terms matter here. A Court Order is a directive signed by the judge. A Stipulation is a written agreement between the spouses, usually negotiated by their attorneys, that the court may approve or “so-order.” Both are binding, and both are sometimes drafted before anyone has consulted a broker. Some of the terms I see can create problems of their own:

• A buyout required of a spouse who may not qualify for the financing it needs.
• A listing required at a commission or on terms that may not be acceptable to an experienced agent, or prudent for the property and the circumstances.
• A requirement that one spouse remove the other from the mortgage. That requires a lender to cooperate, and the lender isn’t a party to the divorce.
• A provision that one spouse is responsible for a debt. Between the two of you, maybe. But if the bank has both of you on the hook, it can still look to both of you, and it isn’t under the divorce court’s jurisdiction.
• An assignment of carrying costs that becomes a monthly leverage point, and a reason to go back to court.

Consulting with me before those terms are set can cost far less than fixing them afterward.

One Listing Broker, neutral between the divorcing spouses

In an ordinary sale, a broker answers to a “client.” Commonly that’s spouses who are not in conflict and are treated as a single client with the same goals. They may have different preferences or opinions, but they still collaborate on an outcome they both agree to. In a divorce, the spouses are in conflict with each other and generally have conflicting interests beyond, but including, the real estate.

Each spouse may try to claim, or exert, the duties a broker normally owes a client under agency and licensing law: obeying lawful instructions, full disclosure, and so on. In a divorce matter that often isn’t appropriate, and it can create more conflict and more cost. For example:

• The spouse who moved out says they’ll show up at the open house, since the other spouse won’t be there and it’s their house too. They may not belong there, may even be barred from the property, and could gather information that hurts the other spouse’s position in the case.
• One spouse wants “full disclosure” of who’s living in the house with the other.
• There’s an order of protection in place. How are showings, keys and communications handled?

A regular agent can make situations like these much worse, quickly. As an expert divorce real estate broker, my divorce-specific process is designed for situations like these. (Not for nothing, experience getting divorced isn’t the same as experience as a divorce real estate broker.)

I work these matters as a neutral. Both of you engage me, or the attorneys agree on me, or the court appoints me or orders you to hire me. I work for the two of you against the market, not for one of you against the other. I don’t disclose things that are immaterial to the transaction when doing so could only cause other issues.

There are times when there are two brokers, one for each spouse. Generally, that’s not the way to go (it tends to bring the dispute into the sale), though there’s a time and a place for everything.

My process is designed to keep the attorneys, and the court where necessary, in the loop appropriately, to reasonably avoid unnecessary legal expense.

Who you’d be working with

Diallo J. Stevens, Licensed Real Estate Broker, in full-time practice since 2002. The first in New York State to earn the Certified Divorce Real Estate Expert designation, a New York State Part 36 fiduciary eligible for court appointments, and a New York State Approved Real Estate Instructor. I handle divorce real estate matters in Queens, Brooklyn, Manhattan and the Bronx, both Nassau and Suffolk Counties, and Westchester.

The divorce real estate code of ethics I hold myself to (PDF, one page)

Situations that come up, and how I help

These are some of the issues that can surface in a divorce sale. Any one of them can derail a sale if it isn’t anticipated and handled by someone who has worked through it before. That’s where my experience comes in.

Some divorce issues are more emotional than logical or mathematical, and that can lead to behavior nobody is proud of later. It still has to be managed, calmly, for the sale to get done.

Pricing, preparation and offers

Sometimes the court or a Stipulation sets the list price. Sometimes the court orders the house listed at whatever price I recommend, sometimes with built-in price reductions (which can be good or inappropriate, depending on the situation). Within whatever constraints apply, I help the two of you and your attorneys work toward the best outcome for the marital estate: both of you, collectively. That includes evaluating whether to sell as-is or fix things first, and what each path is likely to net.

Offers and important developments reach both sides through the process agreed on at the start. If the two of you can’t agree on an offer, it may go through the attorneys, and if that fails, the court may decide. I keep my files with the expectation that a judge may read them.

Contract, closing and the money

A sale to an outside buyer generally needs New York’s property condition disclosure statement delivered before the buyer signs the contract, unless the transfer is made under a Court Order (Real Property Law 462 and 463). Both owners sign the contract and the deed, or one signs under the court’s authority.

At closing, the mortgage, liens and closing costs come off the top. The rest is held in escrow until the divorce is resolved, or divided as your agreement or the court directs.

On taxes: federal law lets an owner who qualifies exclude up to $250,000 of gain on a main home, or up to $500,000 on a joint return, and a spouse who moved out can count the time the other spouse lived there under the divorce papers (Internal Revenue Code section 121). Transfers between spouses as part of a divorce are generally not taxed (section 1041).

The goal: the shortest road to recovery

Divorce does financial damage, even when it’s handled well. One of my personal goals in serving divorcing and divorced clients is to reduce the risk of a mess, and to help put them in a position for the shortest recovery from that damage. Another is to help the attorneys and the courts arrive at better outcomes for the families affected.

Bottom line is a successful sale, with the best practical financial result for the marital estate, and with as few collateral issues and as little unnecessary litigation as possible.