For many couples, the marital home is the most valuable asset within their estate. So what happens to this property if they divorce or separate? The parties may be in a position where they can agree for one of them to retain the home, and “buy out” the other’s interest. However, in many situations, that is not possible, as neither party has the means to buy out the other or cannot qualify to refinance the current mortgage into his or her sole name. The result in such situations is that the marital home has to be sold, and the net proceeds of sale are divided between the parties pursuant to a Marital Settlement Agreement or as determined by the court.
If the circumstances dictate that the marital home must be sold, there are many factors that should be considered to determine the distribution of the net proceeds of sale between the parties. Upon sale, the mortgage and any other secured loans on the property are usually the first paid off. Thereafter, the standard closing costs are paid, including the real estate agent’s fees. If either the husband or wife advanced funds to prepare the marital home for sale, then they are usually also reimbursed, provided such expenditures were necessary and reasonable and recommended by the real estate agent. The remaining funds are referred to as the net proceeds of sale, and that amount is what is available to be distributed between the parties. Often the parties simply agree for those monies to be shared equally between them, but there may be factors which justify one party receiving a greater proportion than the other. Those factors are set out in Virginia’s equitable distribution statute, and include the level of contribution each party made in the purchase, care, and maintenance of the property.
If either party contributed separate money (i.e. monies derived from gift or inheritances or from pre-marital assets) to the initial down payment, payment of the mortgage, or capital improvements, that party may be entitled to recapture his or her separate contribution. These factors are also used to determine the amount one party would need to pay to the other to buy out that party’s interest, if it is agreed that one of the parties is retaining the marital residence in lieu of a sale. It is imperative for parties to seek the advice of an experienced attorney specializing in Family Law to ensure all of the relevant factors are considered in the disposition of the marital home and determination of each party’s interest in the property.
Even if the parties agree that the marital home has to be sold, consideration of the issue does not stop there. Many important factors need to considered and addressed by the parties and their respective attorneys to ensure the sale proceeds smoothly, as failing to do so could result in further litigation and costs for the parties. Once an overall settlement in the divorce is reached, the attorneys will draft the Marital Settlement Agreement. Below are some important factors which should be addressed by your Family Law attorney in the written Marital Settlement Agreement, with regards the sale of the marital home:
- Selection of a realtor (whether one has been agreed to by the parties or is yet to be agreed);
- A deadline for putting the marital home on the market for sale;
- How to deal with any repairs or maintenance necessary to have the property ready for sale, and how the parties will pay these costs;
- Determining a list price and duration of the listing;
- Future adjustments to the list price if the property has not sold after a certain period of time;
- Under what circumstances the parties would be required to accept an offer for sale;
- What happens if the home inspection report lists a number of repairs or issues with the property which need to addressed, and how will the parties deal with a buyer’s request after the home inspection
- Exclusive use and possession; is it appropriate for one party to have exclusive use and possession of the house until the sale;
- Responsibility for payment of the mortgage, the bills, and for any maintenance pending a sale;
- Defining each party’s responsibility to prepare the home for sale, maintaining it in “show ready” condition, and making the property available for showings at all reasonable times; and
- Need for cooperation; what happens if one party fails to cooperate in the sale, or refuses to respond in a timely manner to requests by the realtor, home inspector, contractors etc.
There are many factors which need careful thought and consideration when drafting the Marital Separation Agreement, and it is best practice for many of these factors to be incorporated into the agreement. By doing so, parties can maximize the chance of a smooth transaction on the sale of the marital home, and avoid potential future acrimony and further costly litigation.