For most people going through a divorce, their interests in real estate are often the primary assets that need to be divided. Whether it is the marital home, a vacation property, or commercial real estate, most litigants question how they are addressed in a divorce. Like all other assets acquired during the marriage, the law requires that they first be identified and then valued, after which the court (or the parties by Agreement) can effectuate their “ equitable distribution”. However, dealing with real estate in divorce has become more challenging given the ever-changing market. This blog post will attempt to briefly address some of these issues.
The first task is to identify those real estate holdings that may be subject to equitable distribution. To be subject to equitable distribution, they usually need to have been acquired “ during the marriage”, which is generally defined as between the date of marriage and the date the divorce complaint is filed. However, as with most things in divorce, there are some exceptions. Real Estate acquired “in contemplation of marriage”, often the marital home, may be considered subject to equitable distribution even though purchased prior to the date of marriage, if certain elements are established ( a topic for another blog post perhaps). Furthermore, sometimes real estate may change in value, not due solely to market forces, but through the “active” efforts of the owner or financial contributions towards improvements. If those “active” efforts or contributions occurred during the marriage, even if the property itself was originally acquired prior to the marriage, any change in value attributable to same may be considered a marital asset subject to equitable distribution.
Once marital real estate assets have been identified, they need to be valued. Often the parties may decide that they want to simply sell the real estate and divide any “net proceeds” in some fashion. In this case, the property may not need to be valued as the market itself will establish its “value” when it is sold. However, in other instances, real estate may not get sold either because one or both parties want to retain it (i.e. the marital home) or it may not be amenable to be sold ( i.e. commercial property housing a business). In these instances, its value will need to be established by way of appraisal done by a professional real estate appraiser. Sometimes to save the cost of an appraisal, the parties may go to a local realtor for a CMA or Comparative Market Analysis. This is not the same thing as an appraisal but is usually just an estimate based upon recent listings or sales in the area to support a possible listing price. Hence, courts generally do not accept CMA’s as proof of value. That is not to say that parties may also attempt to“stipulate” or agree as to a property’s value, but in today’s market that can be a challenging task. And frequently parties have different motivations concerning the disposition of the property which may lead them to either want to minimize or maximize its value in a case. While parties may also secure competing appraisals, discrepancies are usually small and generally reconciled between the appraisers or during discovery or at trial.
However, the valuation of real estate in divorce matters has been complicated by the overheated market during the last few years. Property values, particularly in the residential market, have gone up dramatically-changing substantially sometimes in a matter of months if not weeks. How do you value those assets when they are a constantly moving target? The delay in the disposition of divorce cases by the court due to Covid has only complicated things further. If litigants are truly driven to settle their matter as soon as possible, obtaining appraisals early on for use during negotiations makes sense. However, if these settlement efforts fail, it may be necessary to obtain updated appraisals as close to the date of trial as possible to provide the court with current information as to value. The same advice would follow if prior appraisals had not been obtained. Get them as close to the trial date as possible. However, even then, given trial delays, or the length of time between trial and final disposition, the market may have substantially changed making the earlier value obsolete. In those instances, it would be prudent for the parties to either agree or to ask the court to preserve the opportunity to obtain updated appraisals upon the final disposition of the case.
Simply stated, the disposition of real estate in divorce is no longer the relatively straightforward process it once was. Yudes Family Law is approaching a half-century of experience handling the complexities of divorce matters. We are here to help you navigate through these complexities.