Top 2 Mistakes Made Working with Divorcing Clients

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Top 2 Mistakes Made Working with Divorcing Clients

Jody Bruns, CDLP, CMMU

Mistakes happen, yes. But, some mistakes should never happen.

 

Working with divorcing clients has been my authoratative niche for many years. I have trained many mortgage professionals and real estate professionals. I unfortunately see mistakes made on a regular basis by both professionals. No fault of their own as most lenders and real estate professionals don't realize that much of what we do can hinder a client's efforts during a divorce.

 

I thought I would share with you what I see as the top 2 mistakes made when working with divorcing clients when buying or selling real estate. 

 

Number 1 Mistake: Helping a client purchase a new home while still married.

As a real estate professional, you should understand the difference between marital property and separate property. Not so you can provide legal advice, but rather so you can help protect your client from future issues if they are planning a divorce in the future.

Separate property is all of the following:

  • What you bring into the marriage
  • What you receive as a gift during the marriage
  • What you inherit during the marriage

Marital property is all of the following:

  • All property acquired during the marriage
  • In some states, the increase in value of separate property

How does this transfer over to you as the real estate professional? Let's say that "Jane" calls you on the phone and tells you that she is looking to purchase a new home and that her and her husband are thinking about getting a divorce; however, until that time she wants to go ahead an purchase a new home on her own. Perfect, right? Not so fast.

You take Jane out to view properties, Jane finds the perfect place, your offer is accepted and the deal closes. Piece of cake - you satisifed your client and banked the commission.

Fast forward a month, a year, whenever. Jane files for divorce.

Jane's new home is considered marital property because it was purchased during the marriage and her husband, "John", now wants his share of the equity in the Jane's new home because it is a marital asset. Jane doesn't have the cash to pay him his share of the equity in her new home and therefore needs to sell the home.  (Note: all the new furnishings for the new home can be considered marital property also!)

How do you as the real estate professional avoid this? Advise Jane to speak to her attorney about the ways to protect herself and the equity in her new home once they are in the midst of a divorce. 

 

Number 2 Mistake: Selling Real Estate Owned by One Party

Many times married couples own property in only one party's name for various reasons. Whether the property is their primary property or an investment property, it doesn't matter. How does this matter to you as the real estate professional?

Let's say that "Mike" calls you to schedule a listing appointment for a single family residence that he is the sole owner of as an investment property. Mike informs you that he and his wife, "Kim" are getting a divorce and he wants to liquidate property. You deliver a perfect listing presentation and Mike signs the listing agreement. You then list the property for sale and BAM - under contract and closed! Another commission check banked. Again - not so fast.

The sale of the investment property may not be a legal sale. While Mike may have been the sole owner of the property, it may be considered an asset of the marital estate whether it was considered separate property or marital property. If it was separate property (owned prior to the marriage or purchased with inherited funds) depending on which state  you are in the increase in value of the property could be considered marital property. If the investment property was purchased during the marriage, it is considered marital property. 

In most states, once a divorce petition has been filed an Automatic Temporary Restraining Order (ATROS) is issued which prohibits all parties for selling, transferring ownership, or hiding any assets whether separate or marital property.  In Mike's case, he sold property that he might not have had permission to sell and yes, the court has the right to order the property be given back. And what goes back with the house? That nice commission you just banked. 

How do you as the real estate professional avoid this? Once Mike informed you that he and his wife were in the process of a divorce, you should ask Mike if he has the court's permission to sell the property. If he says he does - then ask for a copy of the order or agreement allowing him to sell the property for your files. 

 

Working with divorcing clients can be very rewarding. It allows you to help a client that is going through an emotional time in their lives. It can be a very strong referral stream from divorce attorneys, financial planners, and other divorce professionals. 

 

It also requires that you have an understanding of how connected divorce law, tax law, mortgage financing and real estate are when divorcing clients have real estate in an effort to avoid mistakes like the two I just described. This doesn't mean that you need to have a law degree or be a tax accountant; but it does mean that you should have the knowledge base to recognize potential red flags.

 

You can find some great information and additional resources at the Divorce Lending & Real Estate Association's web page. www.divorcelendingassociation.com 

 

It's sad that so many marriages end in divorce. According to the CDC the divorce rate in the United States is 3.2 per 1,000 population. Additionally, 70% of all divorces in the U.S. involve real estate.

 

Many believe that it is a negative thing to focus on the divorce market. I will tell you that because not enough real estate and mortgage professionals understand the connection of the different pieces of the divorce puzzle, divorcing clients pay the price for mistakes that are made. 

 

Jody Bruns, CDLP, CMMU

 

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Re-Blogged 1 time:

Re-Blogged By Re-Blogged At
  1. Mary Yonkers 10/07/2016 08:41 PM
Topic:
Real Estate Best Practices
Location:
Colorado Arapahoe County
Tags:
divorcing clients and real estate
selling a home during divorce
buying a home during divorce

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Rainmaker
816,955
Annette Lawrence , Palm Harbor, FL 727-420-4041
ReMax Realtec Group - Palm Harbor, FL
Making FLORIDA Real Estate EZ

I don't often recommend renting, but in such times of transition, detaching from assets can prove beneficial.

Oct 07, 2016 02:16 AM #1
Rainmaker
1,230,687
Mary Yonkers
Alan Kells School of Real Estate/Howard Hanna Real Estate - Erie, PA
Erie/PA Real Estate Instructor

Thanks you Jody Bruns, CDLP, CMMU for very informative post about working with divorcing couples.  Bookmarked.

Oct 07, 2016 05:12 AM #2
Rainmaker
820,870
Juli Vosmik
Dominion Fine Properties - Scottsdale, AZ
Scottsdale/Cave Creek, AZ real estate 480-710-0739

Jody, you bring up some great points but many of us live in community property states which brings up another level in the divorce situation.  Best idea as you mention, get some knowledge.  

Oct 07, 2016 12:47 PM #3
Rainmaker
1,609,564
Marte Cliff
Marte Cliff Copywriting - Priest River, ID
Your real estate writer

I once had a call from a gentleman who wanted me to come and take a look at his property. When I got there, he asked if I could hurry up and sell it for him before his wife got home. She was out of state visiting her sister... 

I explained about community property and the fact that if both their names were on the deed, she would also have to sign in order to sell it. He was VERY disappointed. 

Oct 07, 2016 02:01 PM #4
Rainmaker
1,587,928
Sandy Padula and Norm Padula, JD, GRI
HomeSmart Realty West & Lend Smart Mortgage, Llc. - Carlsbad, CA
Presence, Persistence & Perseverance

Jody Bruns, CDLP, CMMU Good post and all another reason why when we take a listing we have two actions we undertake:

  1. We check the tax records and property appraisers records, and
  2. We have one of our trusted partner-attorneys double-check.

Sellers are 'Tellers'!

 

Oct 07, 2016 09:37 PM #5
Rainer
212,763
Dennis Swartz
Full Circle Property Management - Columbus, OH
MBA, GRI...experience counts!

Good advice....I have found that one tends to be dominant in decisions sometimes and you need to make sure to communicate with both parties equally.

Oct 07, 2016 10:30 PM #6
Ambassador
4,702,895
Bob Crane
Woodland Management Service / Woodland Real Estate, Keller Williams Fox Cities - Stevens Point, WI
Forestland Experts! 715-204-9671

Thanks for sharing this advice Jody, clearly a situation that none of us want to be in the middle of.

Oct 09, 2016 03:11 PM #7
Rainmaker
405,913
M.C. Dwyer
Century 21 Showcase REALTORs - Felton, CA
MC Dwyer-Santa Cruz Mountains Property Specialist

Congratulations on the Feature!    Thank you Jody Bruns, CDLP, CMMU for this informative post.    I was aware of #1 but not #2.    Also, I'd not considered the potential rewards of helping people during a difficult & emotional time in their lives.

Oct 10, 2016 01:46 AM #8
Rainmaker
1,012,090
Jan Green
Value Added Service, 602-620-2699 - Scottsdale, AZ
HomeSmart Elite Group, REALTOR®, EcoBroker, GREEN

Great points all.  Here in Arizona, a title officer immediately asks if they are married, etc so to figure out how to take title and who must sign a Disclaimer Deed so that the other spouse does not own a share of that property.  The downpayment may be community funds, but that is for the attorneys to wrangle over.  I always ask and have never had to be in the middle as the other spouse has to agree that they take no title to the property purchased by the other spouse.  And #2, I always require both spouses to sign listing documents as I check the tax records to see who owns the property.

I have 2 couples going through a divorce right now and watching their documents like a hawk!

Excellent information to consider when helping clients.  

Oct 28, 2016 04:58 AM #9
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Jody Bruns, CDLP

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