The Marital Residence Post Divorce

Two Sides of the Coin with Ian Steinberg of Berkman, Bottger, Newman & Schein
Two Sides of the Coin is a series of articles written by Ian Steinberg, a matrimonial and family law attorney, in conjunction with an array of other professionals from different industries. The series provides insights into issues from the perspective of each party to a divorce. Each article provides readers with practice tips that are helpful when navigating through the divorce process.

The Marital Residence Post Divorce

By Ian Steinberg and Michael Shapot

Many couples who are going through a divorce have to ask themselves the question: what should we do with the marital residence? The simple answer: it depends.

A home is where family memories were made, where children were raised, and where time and money were spent creating a special place. Because of this, people often have an emotional connection to their home. When deciding what to do with the marital residence upon a divorce, it is important to navigate these emotions and treat them separately from the hard economics of divorce. The marital residence is often a couple's largest financial asset, and strategic planning is critical to the economic success of the parties post-divorce.

Depending on whether you are the “monied spouse” (i.e., the spouse who has traditionally been the breadwinner for the family) or the “non-monied spouse,” the decision regarding how to handle this asset may be drastically different. Ultimately, a decision is going to have to be made as to what to do with this asset. Here are some important tips to keep in mind when making this decision:

  1. Evaluate Your Options

There are a few different options a couple will have when deciding how to handle the distribution of the marital residence. The feasibility of each option will often be different for each party to the divorce, depending on whether you are the monied or non-monied spouse. A few of the options are listed below.

  • Buy-Out

A “buy-out” is exactly as it sounds: one spouse will buy out the other's interest in the marital home. In order to do this, the "new owner" of the house (the spouse who is staying in the house) will usually need to waive his or her interest in other marital assets or provide a lump sum payment to ensure equitable distribution of the totality of the marital property.

When making calculating the buy-out price, it is important to remember that both New York City and New York State each take their "vig" in the form of taxes to transfer the title to the home's new owner. Additionally, if there is a mortgage encumbering the property, it will need to be refinanced so that only the spouse who is staying in the house is responsible.

As the “monied spouse” you might be in a better position to afford the marital residence in the long term. This includes the ability to pay the “carrying costs” of the residence while having enough in the bank in the event of an emergency. However, you may also have an obligation to pay child support and spousal support, leaving fewer funds available to maintain the marital residence. As the ”non-monied spouse” it is important to consider whether you can afford to pay the “carrying costs” both in the short-term and down the road. Further, qualifying for a mortgage or getting approved by a co-op or condo board in connection with a new home may be more challenging if there is less of an income stream. In today's rising interest rate and inflationary environment, a new mortgage may be more expensive to carry.

  • Sale

A second option is where the parties agree to sell the marital residence and divide the net proceeds received from the sale. The parties will have to work together to make numerous decisions, which will be detailed further below. Even the strongest of couples disagree on sale strategies, and divorcing couples should think in advance about how to best resolve their differences so everyone can move forward with this important financial transaction.

The non-monied spouse may want to take this route, as it usually provides for an injection of funds in the short term after the sale. However, it is important to consider that there are still costs associated with obtaining a new residence, and finding something comparable may be challenging. The monied spouse may be less inclined to sell the residence if he or she can afford to carry the residence and buy the other spouse out given his or her ability to continue earning an income.

  • Delayed Sale

A divorcing couple can also agree that one will live in the home until a date certain when they will sell the property. An agreement such as this will require the parties to decide who will pay the carrying costs associated with the property, how they will handle repairs, and what will happen at the date decided by the parties (i.e., will one buy the other out or will they sell).

This solution may be a win-win for the parties. The parties can agree that the monied spouse covers the carrying costs associated with the marital residence as an offset to spousal support, while the non-monied spouse remains living there. The parties can continue to build equity in the house while providing stable housing for the non-monied spouse. This technique can often be used in a “down market,” which will allow the parties to maximize the value of the asset once the market rebounds.

  1. Work Together on Major Decisions

Once a divorcing couple has decided how they are going to move forward with (or without) the marital residence, there are many important decisions that remain.

If the parties agree to sell the home, the first decision is choosing the real estate broker that will market and sell the property. The broker will assist in setting a listing price to maximize the value of the home, help with staging the home for sale and provide negotiating strategies for the parties. Sometimes a party may not want to use a real estate broker that was selected by his or her spouse. As the monied spouse, you may have an incentive to be agreeable in order to reduce counsel fees associated with any such disagreement. This is because oftentimes the monied spouse is responsible for shouldering the bulk of the counsel fees in connection with a divorce proceeding.

Other important decisions when there is an agreement to sell the property include determining responsibility for carrying costs and repairs until the property sells, who will live in the property until it sells, who will pay to maintain it, and who will be responsible for the cost of any needed repairs. Many of these same decisions must be made if the parties choose a delayed sale. While the non-monied spouse may believe it is beneficial to delay this process if he or she is living in the residence prior to the sale, there are inherent risks associated with delays. There could be a major repair that did not exist earlier that will reduce the value of the property. Further, it may be significantly harder to find a buyer and there is always a risk of a downturn in the market.

An agreement to sell the property is not possible without cooperation between the parties. If they cannot work together, the sale will be delayed, which inevitably will lead to additional costs. In essence, the divorcing spouses have become business partners, with the ultimate goal of obtaining the highest value for the property.

  1. Consider the Impact on Children

When children are involved, their best interests should be of paramount concern to a divorcing couple. The choice of what to do with the marital home can have a significant impact on the children. The distance between the parent’s homes is important to consider, especially if there is a parenting schedule that allows for access time for both parents. If you are the custodial parent (i.e., the children live with you the majority of the time), you may not be as concerned with the distance between the homes. However, it is still important to consider the traveling time for the children. As the non-custodial parent, mid-week access time may be more challenging if your new residence is further away. It also would make it difficult to step-in in the event the custodial parent has a conflict, which is a common way to increase time with the children.

Another important consideration is how the sale of the marital residence will impact which school district the children attend. Further, the size of a new home is also an important consideration especially depending on the age of the children. Will the children have to share a room, and will that be sustainable as they get older? While the non-custodial parent may think this is less of an issue if he or she is not spending significant amounts of time with the children, this impacts how comfortable the children will be at the home. The more comfortable, the more time they will want to spend there. This holds true for the custodial parent as well.

When making a decision as important as what to do with the marital residence, it is important to follow the advice of the relevant professionals. Consulting with a real estate broker when deciding how to handle the distribution of the marital residence is of the utmost importance, whether you are the monied spouse, non-monied spouse, custodial parent, or non-custodial parent. Leaning on the advice of your matrimonial attorney, who can foresee potential pitfalls in a plan for moving forward, is helpful in minimizing conflicts that may occur down the road.

A divorce, and the real estate choices which ensue, is an emotionally charged time. When emotions run high, intelligence runs low. The best advice: always take the high road, be patient and sensitive to your soon-to-be-ex, and work through the process as systematically and logically as possible.

Ian Steinberg is a matrimonial and family law attorney with Berkman Bottger Newman & Schein. He can be reached by email at isteinberg@berkbot.com or by phone at (212) 466-6015.

Michael Shapot is a residential real estate broker with Keller Williams. Michael is a leader in the Manhattan real estate industry who has been recognized by his peers and colleagues, receiving the coveted Manhattan Realtor of the Year Award by the Manhattan Association of Realtors. Michael can be reached by email at michael.shapot@kw.com or by phone at (646) 833-4321.

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