Real Estate 101 - Divorce and The Family Home

Divorce is rarely easy and carries with it the necessity of making a number of difficult decisions.  Perhaps the most important decision is what to do with your home. There are several options that must be considered when determining how real estate is to be divided in a divorce.  The property doesn’t always have to be sold, but in most cases it is.

For most couples, their home is their largest asset so selling it is the only way for both parties to receive fair share of the marital estate quickly.  However, there may be special need for one spouse to remain in the house, especially if there are children still living at home.

The first step in dealing with the real estate issue in a divorce is to determine the value of the property.  If both spouses agree on the value then there’s no problem and the home can be out on the market. 

But if there is disagreement there are several evaluation techniques available.  One is to find the value that your local municipality has placed on your property.  However, this value is often 10 to 15 percent below market value and may result in selling the property for less than it is worth.

The most cost effective way to agree on value is to have an independent real estate appraiser perform an evaluation.  This will cost approximately $350-$450, and this method of evaluating property is the one most readily acceptable by both courts and banks.   A Realtor can also do an evaluation for you if he or she has some training in residential appraisal.

 Once a value has been placed on the home, the parties must decide how the asset is to be divided.  In Newfoundland, unless there are extenuating circumstances such as legal pre-nuptial agreements, marital property is usually divided equally between both spouses.

For example, if one party is awarded the home, the other party must be compensated for their share of the property in some other manner.  In any case there are three basic options most divorcing home owners face – sell the home and split the proceeds, one spouse buys the other spouses share or both retain ownership till a later date.

The simplest of these options is to sell the home and split the proceeds.  The value of the home has been determined, the house is put on the market for sale, and the net proceeds (i.e. whatever is left after the mortgage is paid out, the real estate and bank penalties paid, etc.) are divided between both parties.  In this case they have no financial commitment to their former home and each must start anew. 

The second option where one spouse buys out the other is also quite common.  The method of division ensures that only one spouse has to “start over” again rather than both.  It does require the spouse remaining in the home to have sufficient income to now take on total responsibility for the full mortgage, heat, taxes, etc.  It can create a burden on the spouse remaining in the home and one should seek advice from their lawyer, Realtor or banker before committing to this option.

The third option is to retain joint ownership of the home until a pre-determined date.  For example, the home is to be sold and the proceeds divided when the last child leaves the home, or finishes school, or at some other agreed upon date.  This option can be advantageous to everybody, but it does require both parties to cooperate with each other for some years after the divorce because this will entail agreement on the maintenance of the home.  This can be quite challenging and must be weighed carefully before proceeding. 

These three options work and will result in a closure of the real estate issue of the divorce proceedings.  Unfortunately there are cases where both parties become embroiled in a dispute where neither party will agree to anything the other party suggests.   

This can continue on for a year or even longer until the courts finally order a sale of the property.  Sine both parties have likely neglected the property, by the time it’s sold it will need repairs.  Hence, the sale price may be less than it would have sold for at the start of the divorce.

In this case, both spouses lose money – money each will desperately need to start over.  Certainly not a wise method of resolving dispute.  It is crucial to both parties, no matter how hurt they may feel, to realize it is in their best financial interests to make the division of this asset go as smoothly as possible. 

Many Realtors are very experienced in selling a home as part of a divorce settlement and can help make the sale as agreeable as it can be to both parties.  They know tensions run high, feelings have been hurt, tempers flare.  They are prepared to deal with both parties without being judgmental. 

Your Realtor should be your neutral third party who can help make you logical – rather than emotional – decisions and help you get on with your new life.  Choose that Realtor carefully.