Deferred Distribution

An interesting issue was recently considered by the Court in the case of Muller v. Muller. Specifically, the Appellate Division examined whether a husband could compel the sale of the marital home when he had conveyed his interest by way of deed about ten years earlier, but the parties’ Property Settlement Agreement (“PSA”) had provided for the husband’s continued ownership.

The parties in Muller were married for 17 years. When they divorced in 1990, they entered into a PSA, which, in part, provided as follows:

EQUITABLE DISTRIBUTION
A. Husband and Wife agree to divide equally the personalty . . . upon sale of the premises or child’s emancipation, whichever shall first occur.
B. Upon execution of contract of sale of the above premises, Husband agrees to put his interest in the marital home in trust for Child.
. . . .

REAL ESTATE
A. Husband agrees to pay the mortgage payments [on the marital home] . . . until the time that child graduates from college, or reaches the age of 22, whichever shall first occur[.]

The husband paid the mortgage from the time of the divorce until around 1999 when he defaulted on the payments. The mortgagee instituted foreclosure proceedings in or around July of 2000. In order to avoid foreclosure, the wife borrowed about $60,000 and refinanced the property. The husband executed a deed and conveyed the wife his ownership interest in the property for consideration of $50,000. As a result, the wife exonerated him of the debt the he had incurred by defaulting on the mortgage payments. At the point, the child was 21 years old and had graduated from college.…

Continue Reading Did a Property Transfer Occur? Husband Could not Rely on the Property Settlement Agreement to Compel the Sale of the Marital Home Because the Deed Controlled.

We are in the midst of the Spring real estate season and this is the time during a divorce when one spouse will inevitably want to list the marital home for sale. Often times, the parent likely to be the primary custodial parent will offer resistance with the best of intentions, because he or she wants to keep the house for the kids.

I am often approached by a client who tells me that they are willing to give up other assets in order to maintain the marital home. This may be for a variety of reasons, but most often because a parent wants to minimize the trauma of the divorce on the children and believes that remaining in the home that they have grown up in is the way to accomplish that.

 

But, at what cost? While minimizing transition for the kids is an admirable goal, I find that in many cases, the person who wants to stay in the house does not truly understand the expenses associated with keeping the house, both now and in the future. So I try to make sure, sometimes with the assistance of a financial adviser, that my client is making a decision that really makes financial sense.

 

In the vast majority of cases, the person who will keep the house has to refinance, or otherwise assume a mortgage in order to remove the other spouse from liability for the mortgage and note as well as any home equity lines of the property. This means they have to be able to qualify for the entire amount of debt on the home by themselves. Plus, they have to pay all of the costs associated with the financing such as closing costs and points on the mortgage. Finally, they will likely have to pay the other spouse one half of any equity in the home. This costs can be substantial.

 

When paying the other spouse their equity in the home, sometimes there are other assets with which to offset the issue of paying off the other spouse. However, this is not a step to take lightly. Often, I see litigants give up all of their other liquid assets in order to keep the house. The result can be that there are no savings in case of an emergency, or in the event of loss of employment, something that is a real threat in the present economy. Other times, litigants will trade off their share of their spouses retirement to keep the house. This is a dangerous move, particularly if the litigant has traditionally been the non working spouse throughout the marriage and does not have enough years to accumulate retirement funds after the marriage is over. As we know from the current real estate market, we can’t count on the value of property to go up or even remain the same.…

Continue Reading Is Keeping the House Really a Good Idea?