WEIGHING YOUR OPTIONS: What to Do With Your House During Covid Divorce In NJ?
The fall real estate market is still very active here in NJ, with the coronavirus crisis continuing to drive city dwellers to seek more space in the suburbs. If you and your soon to be ex-spouse own property together and are deciding what you do with it —now is the time to start weighing your options
As a New Jersey divorce lawyer, it is my job to protect the financial interests of my clients. Working together we will evaluate and discuss all the implications. In some cases, a client will decide to stay. In other cases, selling the home and allowing each spouse to make a fresh start will be the best course of action. I wrote this piece so if you decide to keep the marital home or move on, you will have a better understanding of the price you will pay.
Most divorced couples will choose between these options:
Sell the house and split the proceeds
You both might decide to make a fresh start and to move on immediately by selling your home. Under New Jersey law, marital property includes all property, both real and personal, which was legally and beneficially acquired by either of them during the marriage. This excludes any gifts (unless given to one spouse from the other) or inheritance
New Jersey courts don't automatically split marital property down the middle, but use an equitable distribution system that considers the following factors:
Duration of the marriage;
Age and physical/emotional health of each spouse;
Each spouse's income;
Any debts or liabilities;
The couple's standard of living;
The economic circumstances of each spouse;
Each spouse's contribution to the couple's marital property (including a spouse’s contribution as a homemaker);
Earning capacity of each spouse;
Any written agreements before or during the marriage concerning property distribution (such as a prenup); and
Any other factors the court deems relevant
The court will distribute property after conducting a 3-step process:
Determine which property is to be distributed (see the definition of "marital property" above);
Determine the value of the marital property; and
Calculate an equitable division of that property.
From there, you’ll make a legal decision to divide up the earnings equitably upon closing.
Frequently, a custodial parent will “buyout” the equity of a non-custodial parent so that the children can remain in the home. Keep in mind buying out the equity of a spouse likely means he or she walks with more cash, while you retain an asset that could be hard to sell and may significantly decline in value. The costs of necessary repairs or improvements can also drain home value that looked much better on paper. So, determining a home’s value and condition will be critical in deciding whether you can afford the home as a single parent.
Keep the house and sell it at a later time
You and your ex might decide to hold onto your home and rent it out. Alternatively, you might decide on an alternative living arrangement where you keep the property jointly post-divorce and wait for the right time to move forward with a sale.
The spouses can devise a Property Management Agreement to cover any real estate that will remain jointly owned after the divorce. This document should address issues such as how the listing price or rent will be calculated if the property is sold or leased, as well as how payments for repairs, maintenance, utilities, insurance, taxes, and other necessary expenses will be allocated between the spouses.
Tax implications of your decision
Don’t forget to consider the tax implications of your various divorce settlement options. New Jersey law is the same as federal law when it comes to taxing capital gain on the sale of a primary residence. You can deduct up to $250,000 of capital gain on the sale of a primary residence as a single person. Married filers can deduct up to $500,000 in gain. Under IRS rules, there is no recognized gain or loss when a property transfers between spouses during divorce. Thus, the tax basis of the property will remain the same as it was before the divorce.
In addition to capital gains, a portion of property taxes and assessments may be owed by a former spouse. Liquidating other assets, such as brokerage accounts, to buy out a spouse may also have tax implications.
To avoid uncertainty, you may want to consult a mediator who can help you reach an agreement. A divorce mediator is a neutral third party who specializes in helping spouses resolve complex and contested issues. Reaching an agreement can prevent assets from being depleted during litigation, which is a prospect that both of you likely want to avoid.
If you have questions call me at Van Tassel Law, LLC today for a free and confidential consultation so you can determine what the best course of action is for your case.