What Will Happen with my House in a Divorce Proceeding?
More often than not, the house (or marital residence) owned by one or both of the married parties represents the primary, if not only, substantial marital asset. The value of the marital residence is typically measured by the “equity” in the property, or the fair market value of the property less the balance of any outstanding mortgage or line of credit. Under New York’s law of equitable distribution, both parties are entitled to an “equitable” share of the equity in the marital residence. Assuming the property was acquired during the marriage, and neither party can demonstrate that any separate property was utilized towards the purchase of the property, the Court is likely to divide the value of the property equally between the parties. But how? There are four common methods in which to divide the value of the marital residence, which can be done by agreement between the parties or order of the Court after a hearing. 1. The property is sold on the open market, and the net proceeds is divided equally between the parties, after payment of broker’s commission, satisfaction of outstanding mortgages and liens, and payment of usual and customary closing costs; 2. One party buys the other party out of the property, by paying them one-half of the net equity of the property. This may also require a pay-off or refinance of the existing mortgage to remove the other party’s name from the mortgage; 3. One party keeps the house, and the other party keeps another marital asset (s) (for example, bank accounts, vehicles, retirement assets, a business interest) having a similar net value as the equity in the marital residence so that each party receives assets having comparable values; or 4. The custodial parent remains in possession of the marital residence until the youngest child completes high school (or until some other triggering event), at which time the house will be placed on the market for sale, and the net proceeds divided between the parties, as in option #1, above. This is referred to as an “exclusive occupancy” arrangement and will require the custodial parent to pay all the carrying charges for the property (mortgage, taxes, insurance, utilities, etc.) During the period of exclusive occupancy and until the property is sold. The custodial parent making these payments should be entitled to a credit for payments made during the exclusive occupancy in reduction of the principal mortgage balance at the time the property is sold and will be able to claim available tax deductions for payment of mortgage interest and property taxes. Each of these four methods have their pros and cons, benefit, and pitfalls, which should be fully explored with experienced legal counsel, as well as tax professionals.
For more information on divorce and property division, please contact Wisselman, Harounian & Associates today.