In every divorce situation, there is bound to be some type of real estate transaction, as one or both spouses will obviously be moving to a new home. In some cases, couples try to deal with the real estate situation even before they go public with the fact that they’re getting divorced. But no matter when you decide to deal with your living situation, there are some specific things that can be done to make the process as discreet and smooth as possible. Jessica and T.H. invited realtor and former real estate attorney, Melissa Rubenstein (who is also divorced and went through the process of purchasing her home from her ex), onto the Divorce etc… podcast to hear her top tips on how to handle it all.
HOW TO PREPARE PRE-MEDIATION OR TRIAL
When it comes to the “needs to know” prior to mediation or a divorce trial (or even possibly when you’re just in the beginning stages of considering whether divorce is an option), it’s imperative that both spouses are aware of all aspects of their joint financial life. This means not only investment and other accounts but all debt, including the details about the mortgage on the marital home and investment properties. While one bank may have been your lender at closing, it’s likely that the loan was sold to another institution and that another may be servicing the loan (this is why even though Citibank may be where you secured your mortgage, now you could be making your monthly payments to Cenlar). It’s important to know the login information to that account so that you have an accurate idea about what the current mortgage is, what the monthly payments are, and potentially how much equity is in the house.
Unless you’ve been living under a rock, you’re likely aware that real estate values have been extremely volatile over the past few years, since the pandemic began. In the suburbs of New York City, for example, home values have increased 15-20% over the last two years. Doing a bit of research on the internet can give you a vague idea of the valuation of your home, but prior to any divorce negotiations, it’s hugely beneficial to consult a realtor or professional appraiser who can give you a more accurate sense of what your home is actually worth today.
On that note, Melissa’s advice is to never negotiate based on the future value of the home (i.e. agreeing to hold off on compensation until the home is sold in 10 or 15 years at that value). While prices may go up, there is also a chance that they could drastically decrease, as we’ve seen in previous real estate cycles. At today’s prices, as with any market, the marital home is often the biggest financial investment – and the largest piece of equity – for a couple. Knowing the value and what you stand to walk away with is crucial in negotiating the best outcome in your settlement.
DO I STAY OR DO I SELL?
There are many reasons that one spouse may want to stay in the marital home – emotionally it’s home to you and your children, the kids are enrolled in the school system, and you don’t think you’ll find something else that fits your needs. It’s natural to want to maintain as much stability as you can for you and your family, but again it’s important to go into negotiations knowing what your options are. When most people consider staying in their home they first consider the ability to pay the current monthly payment. But in order to purchase the marital home from your spouse you not only need to have the cash to pay out half of the equity (or whatever you negotiate), but you need to be able to qualify for a mortgage on your own. If you’re employed, your income needs to qualify you – or potentially you may qualify based on substantial assets in your account post-divorce. But if you are not currently employed, you need 6 months of support payments to be able to qualify for a mortgage in your name. These payments can begin prior to the finalization of the divorce, so it’s crucial that everything is documented.
For these reasons, you want to make sure you’re working with an agent you can trust and who can answer all of your questions. You’ll need to work together to come up with plans for both staying in the house and selling and relocating prior to mediation or trial so that you have the knowledge to negotiate what’s in the best interest of you and your family.
WE DECIDED (OR THE JUDGE DECIDED) THAT WE’RE SELLING – NOW WHAT?
Ideally, you and your spouse can choose a local, experienced and knowledgeable realtor that you both agree on, but sometimes the mediator or judge will suggest or appoint someone that they feel is the right professional for the sale. The important point is that in the majority of sales one realtor represents both spouses in the sale of the marital home. This means that all information is shared equally with both parties and decisions are made by both spouses, sometimes with the help of the mediator or judge. In an ideal world, everyone cooperates for the goal of getting the highest price with the most qualified buyer in the smoothest possible transaction, but issues range from lack of communication to restraining orders and beyond, which requires a realtor who is seasoned and skillful in handling sensitive divorce sales.
One of the first steps in the pre-sale process is pricing the home. An experienced realtor will present comparable sales and, with knowledge of the local market, suggest a list price. If the parties are not in agreement (the party who wants to stay may suggest a significantly higher list price so that the sale is delayed, while the other may want a lower price to get multiple bids and a quick sale), a professional appraiser may be obtained for a third party view on the potential listing price.
Once you and your spouse have agreed on a realtor and price, staging is often the next step prior to getting the property on the market. Divorce presents some unique challenges in how to present a home. One of the goals when preparing and marketing a home is to take the story out and allow the buyers to picture their life there. When buyers walk through a home they are often distracted by the narrative that family photos tell, and very often remark that there are only men’s or women’s clothes in the primary bedroom and ask if the couple is divorcing, did someone pass, etc. The buyer needs to be focused on their life in the house because that will get the highest price and take away some buyer’s urge to capitalize on the misfortune of another’s situation.
The first few conversations with your realtor should not just focus on price and getting your home ready but emotionally on what’s right for you and your family. Every single marital situation and every single sale is different. Michelle says you want to work with someone that will approach everything with an open mind and know that no two situations are going to be the same. Questions that come up – are you comfortable with a sign going out on the lawn? Do you want neighbors to know that you’re selling? Obviously, everything’s on the internet these days, so everybody eventually knows what’s going on. But do you want an open house versus private showings? Do you want a lockbox on the door? In the most extreme situations, there might, unfortunately, be restraining orders where the other spouse is not permitted in the house, where privacy is of the utmost concern, where there can’t be an open house and the agent has to be incredibly careful about who is allowed into the house. At times, you may need to show identification. Everything is considered to protect the safety and privacy of everyone involved.
AN OFFER IS ACCEPTED AND CLOSING IS COMING UP – MOVING ON TO THE NEXT CHAPTER
Oftentimes when you’re selling the marital home, if you’re not ready to go into a new sale, especially in an environment like today’s, where there are just so few homes on the market, you’re going to be thinking about a rental. In terms of a rental, this is something that you should definitely bring into your mediation. You’re likely going to need three and a half months of rent to go into a rental – the first month, last month, and a month and a half security deposit. In addition, qualifying for a rental depends largely on the market you’re in. City v. suburb, house v. apartment, individual owner v. rental company. In New York City, the standard needed to qualify to rent an apartment is the income of 40 times the monthly rent. while in the suburbs you may just have to show that you have cash in the bank to cover a certain time period or put up an additional security deposit. A move into a rental may require a co-signer or guarantor who, in NYC, needs 80 times the monthly rent in income.
If you’re considering buying, as discussed above, not only do you need a downpayment but to qualify for a mortgage you must show adequate income, cash in the bank, or at least 6 months of support payments. Fortunately, there are Divorce Certified Professional Lenders who are experienced and can assist with the process. Searching for your new home is always done at your pace and at your convenience, working around your work schedule, the kids’ school and activities, etc. Relocation from your marital home carries enough stress – the right realtor should make it easier and seamless.
If you’re currently in a lease with your spouse, both of you are still liable for your entire lease through the duration of the lease. The best option is to work something out with your landlord. The landlord can keep your security deposit and perhaps a penalty, but in most markets, once they’ve rented out your space, they can’t continue to charge double rent to you and the current tenant.
THE TAKEAWAY FROM ONE OF OUR REAL ESTATE exEXPERTS
Over 70% of divorces involve buying or selling a home (or both) and having the right professionals on your side can ensure that you’ll be well represented and end up with the best financial and emotional outcome. Michelle stresses that anyone considering divorce to reach out to a professional realtor with experience in the sale of marital homes early in the process. Have that conversation before it gets to the moment where you are forced to pick a realtor and put your home up for sale because in this market things are moving quickly. Having access to information and being guided by the right experienced professional is the best approach to selling your home in the divorce process.