The Intersection of Real Estate and Family Law

By Shari Lee Genser, Esq. and Christine C. Fitzgerald, Esq.

            In a family law matter, every asset must be addressed in the settlement agreement regardless of whether the asset is being divided or whether the asset is determined to be exempt from equitable distribution.  Since real property is often the largest asset in dispute in many middle-income family law cases, real estate law and family law frequently cross paths in a variety of ways.  The division of a marital residence, second homes, investment properties, and real estate owned by a business must be resolved in a Marital Settlement Agreement.  However, the division of the parties’ real estate interests can be affected by a number of other issues that appear at first glance to be unrelated, such as child support, custody, parenting time, the children’s needs, tax implications, and the division of other assets or liabilities. Since each of these issues can affect the way the parties’ real estate interests are resolved, it is important for both real estate and family law practitioners to have a working knowledge of the intersection between these fields.

CHILD SUPPORT JUDGMENTS

            One important area for both real estate and family law practitioners to explore is the implications of a child support judgment.  As real estate practitioners are aware, the existence of a judgment against the owner of real property must be addressed at closing.  Pursuant to N.J.S.A. 2A:17-56.23a, child support orders are enforced as judgments.  By operation of this statute, unpaid child support installments automatically become a judgment against the payor parent by operation of law on and after the date said child support payments are due.  Unpaid child support arrears are therefore rolling judgments that continue to accrue with each unpaid installment of child support.

Pursuant to N.J. Court Rule 5:7-5(d), child support judgments are subject to the assessment of post-judgment interest at the rates prescribed in Rule 4:42-11 at the time of satisfaction or execution.  The Rule further provides that past-due child support payable through the Probation Division shall be automatically docketed as civil judgments with the Clerk of the Superior Court on the first day of the month following the date the payment was due, whereas for child support that is not payable through the Probation Division, the obligee has the burden to file a motion with the court asking that the amount of past-due child support be fixed and that a judgment be entered for that amount, whereupon the obligee will have the responsibility to file the judgment with the Clerk of the Superior Court.  In Pryce v. Scharff, 384 N.J. Super. 197 (App. Div. 2006), the Appellate Division confirmed that where child support is ordered to be paid through the Probation Division, child support obligees are entitled to post-judgment interest on child support judgments, which interest must be calculated and collected by the Probation Division as part of their enforcement efforts when satisfying judgments on behalf of obligees whose child support is paid through Probation.  As with any judgment, a child support judgment must be addressed at closing, inclusive of the payment of post-judgment interest.

            For the family law practitioner addressing the equitable distribution of real estate interests, it is often advisable to obtain both a certified appraisal of the properties at issue and a title search on the parties’ real estate interests prior to addressing how such interests will be divided between the parties.  If there is a concern that one party may have outstanding judgments due to unpaid child support from a prior or extramarital relationship, or other outstanding civil liabilities, that information must be part of the equitable distribution discussion, along with a reliable valuation of the real property at issue.  As discussed in greater detail below, there are various ways to resolve the equitable distribution of real estate, and a seasoned family law practitioner must be familiar with the potential benefits and pitfalls of each option.

DELAYING THE SALE OF THE MARITAL RESIDENCE

Another important area for both real estate and family law practitioners to explore is the implications of a delay in listing the marital residence for sale.  Custody and parenting time issues and/or the needs of the children often result in the parties’ agreement to delay the sale of the marital residence until a specific date, such as a child’s graduation from elementary school or high school.  Courts also have the ability to order a delay of the sale of the marital residence.  Specifically, the delay of the sale of the marital residence is generally sought when a child is nearing a milestone in school, or when a child has special needs and would benefit from the stability of staying in the marital residence or the school district, or when the marital residence has been modified to address the special needs of the child. 

Although delaying the sale of a marital residence until a certain triggering event may seem to be practical in some cases, there are drawbacks that must be carefully planned for and consequences that are sometimes unforeseen.  One case that emphasizes the problems that can occur when the sale of a marital residence is delayed is the New Jersey Supreme Court case of Sachau v. Sachau. 206 N.J. 1 (2011).  In Sachau, the parties entered into a settlement agreement in 1979.  The parties specifically agreed that the Wife would remain in the marital residence with the children until their youngest child graduated from high school.  Within 30 days of the youngest child’s graduation, the marital residence was to be listed for sale by the parties.  Upon the sale of the marital residence, the Wife was to receive $10,000, the Husband was to receive $15,000, and the remaining proceeds were to be divided equally.

In 1984, the parties’ youngest child graduated from high school, which triggered the parties’ agreement to list the marital residence for sale.  However, despite the occurrence of the triggering event, neither party sought to enforce the provision for 22 years.  During this 22-year period, the Wife began making inconsistent payments to the Husband totaling $79,415 until October of 2004.  Finally, in 2005, Husband sought the balance of his interest in the marital residence due to his financial circumstances.  The trial court granted Husband’s request to force the sale of the marital residence and divide the proceeds.  The Wife appealed.  The Appellate Division found that the Husband failed to enforce his rights under the agreement for approximately 22 years, and that he had for 15 years accepted payments from the Wife made to buy-out Husband’s interest in the home while she also maintained the home and paid the property taxes.  The Appellate Division therefore remanded the case to the trial court with specific instructions for a plenary hearing on the following issues:

  1. Whether the agreement by the parties to permit the Wife to buy-out Husband’s interest in the marital residence included an agreement as to the amount of the buy-out for Husband’s share;
  2. What was the total amount of the payments made by Wife to Husband towards the buy-out;
  3. In the absence of an agreed-upon price, what was the value of the marital residence in 1984;
  4. Whether there was a deficiency in the amount owed to Husband; and
  5. Whether it would be inequitable to compel a sale of the marital residence.

On remand, the trial court concluded that there was no agreement as to the valuation date and that the value of the marital residence was $120,000 as of 1984.  Moreover, the court determined that Wife should receive a credit for her payments made to Husband, and that Husband’s share plus interest was $144,915, of which the Wife would be credited for payments previously made to Husband towards his share.  The Appellate Division affirmed, stating that the distribution by the trial court conformed with the Appellate Division’s earlier decision.

The Husband filed a petition for certification and the Supreme Court reversed and remanded the case to the trial judge to “re-evaluate his conclusions in light of the 2008 valuation date and to distribute the proceeds accordingly.”  Id.  The Court determined that a 2008 valuation date was appropriate, given that the home was not sold upon the occurrence of the triggering event set forth in the parties’ judgment of divorce.  As this case illustrates, when delaying the sale of the martial residence, a family law attorney must address the date of the valuation for purposes of division, the credits due to either party, whether a buy-out is permitted, and the circumstances for which enforcement can be sought.  In addition, it is advisable to include terms addressing how the parties will allocate payment of the household bills, including mortgages, property taxes, homeowner’s insurance, utilities, regular maintenance and major repairs.  The clearer the terms of the Agreement, the less likely the parties will be forced to litigate the issue in the future.

SAMPLE PROVISIONS RELATED TO THE DIVISION OF THE MARITAL RESIDENCE

            There are many options that litigants have when deciding how to address and resolve the issue of their real estate interests in a divorce action.  Generally, the marital residence is resolved in one of the following four ways: (A) an immediate buy-out by one party of the other’s interest in the marital residence; (B) listing the marital residence for sale and dividing the net proceeds of sale; (C) an installment buy-out by one party of the other’s interest in the marital residence; and (D) delaying the sale of the marital residence and keeping the property jointly titled pending a triggering event.  The following are sample clauses for settlement agreements, and a brief discussion of the potential benefits and pitfalls of each approach.

A.  IMMEDIATE BUY-OUT OF THE MARITAL RESIDENCE

     OPTION 1 – IMMEDIATE BUY-OUT EFFECUTATED BY OFFSET

1.1  Marital Residence. The parties represent that they are joint owners of real property located at 101 Lovers Lane, LaLaLand, New Jersey (the “Marital Residence”).  The parties have stipulated that the      Marital Residence has a fair value of $1,500,000 and both parties waive their right to an appraisal of said residence.  The parties further represent that there is an outstanding mortgage balance of              approximately $230,000 (“Mortgage”) with NJ Mortgage Company as of July 2018.  The parties represent that other than the Mortgage, there are no other debts against the Marital Residence and,              therefore the equity in the house is approximately $1,270,000.  The parties hereby agree that Wife is entitled to a fifty percent (50%) interest in the equity of the Marital Residence in the amount of            approximately $635,000.  In consideration for the terms of this Agreement, Husband shall retain the Marital Residence without payment to Wife in lieu of payment from Wife to Husband for an alimony        buy-out.

1.2  Within thirty (30) days of execution and delivery of this Agreement, the Husband shall have a Bargain and Sale Deed, Seller’s Residency Certification, Affidavit of Consideration and any other                documents necessary to transfer title of the Marital Residence from the parties’ joint names to the name of Husband prepared by his counsel at Husband’s expense, and Wife shall execute same within        ten (10) days of presentation. Such documents shall be held in escrow by the attorney for the Husband pending the Husband refinancing the Mortgage on the Marital Residence into his sole name or            paying the mortgage off in its entirety.  Husband shall either refinance the Mortgage on the Marital Residence to remove Wife’s name or payoff the Mortgage in its entirety within ninety (90) days of            execution and delivery of this Agreement.  Simultaneous with the refinancing or payoff of the Mortgage, the Deed and related documents shall be released and recorded with the County Clerk, and the        expense for same and any taxes incurred in same shall be paid by the Husband.  This Agreement shall serve as authorization for the release of said documents from escrow

1.3  The Wife shall continue to be solely responsible for all costs associated with ownership and maintenance of the Marital Residence without contribution from the Husband, including, without limitation, both past and present, the Mortgage, real estate taxes, repair and maintenance costs, and utility bills, and she shall indemnify and hold Husband harmless for any and all liability attributable to the Marital Residence until she vacates the Marital Residence.

1.4  Effective forty-five (45) days after the execution of this Agreement, the Husband shall have exclusive use, occupancy and possession of the Marital Residence and Wife shall vacate same. After the Wife vacates the Marital Residence, Husband shall be solely responsible for all costs associated with ownership and maintenance of the Marital Residence without contribution from Wife, including, without limitation, Mortgage, real estate taxes, repair and maintenance costs, and utility bills and he shall indemnify and hold Wife harmless for any and all liabilities thereafter attributed to the Marital Residence.

     OPTION 2 – IMMEDIATE BUY-OUT EFFECTUATED BY LUMP SUM PAYMENT

1.1  Marital Residence. The parties represent that they are joint owners of real property located at 101 Lovers Lane, LaLaLand, New Jersey (the “Marital Residence”).  The parties had the Marital Residence jointly appraised by WeAppraise4U who opined that the Marital Residence has a fair market value of $1,500,000 and the parties hereby stipulate to said value for same.  The parties further represent that there is an outstanding mortgage balance of approximately $1,230,000 (“Mortgage”) with NJ Mortgage Company as of July 2018.  The parties represent that other than the Mortgage, there are no other debts against the Marital Residence and, therefore the equity in the house is approximately $270,000.  The Husband agrees to hold the Wife harmless and indemnify the Wife from these debts in consideration of all other promises and covenants contained herein.  In consideration for the terms of this Agreement, the Husband shall retain all rights, title and interest in and to the Marital Residence.  The Wife shall transfer all rights, title and interest in and to the Marital Residence to the Husband.  The Wife’s share of the equity in the Marital Residence, to wit: $135,000 shall be bought out by the Husband by way of a lump sum payment to be made via certified or bank check by Husband to Wife within thirty (30) days of the execution and delivery of this Agreement.

1.2  Within ten (10) days of execution and delivery of this Agreement, the Husband shall have a Bargain and Sale Deed, Seller’s Residency Certification, Affidavit of Consideration and any other documents necessary to transfer title of the Marital Residence from the parties’ joint names to the name of Husband prepared by his counsel at Husband’s expense, and Wife shall execute same within ten (10) days of presentation. Such documents shall be held in escrow by the attorney for the Husband until such time as the Husband both effectuates the buy-out of the Wife’s share of the equity in the Marital Residence as detailed above, and refinances the Mortgage on the Marital Residence to remove Wife’s name.  Husband shall refinance the Mortgage and Wife’s name shall be removed therefrom within ninety (90) days of execution and delivery of this Agreement.  Simultaneous with the refinancing, the Deed and related documents shall be released and recorded with the County Clerk, and the expense for same and any taxes incurred in same shall be paid by the Husband.  This Agreement shall serve as authorization for the release of said documents from escrow.

1.3  The Wife shall relocate from the Marital Residence within fifteen (15) days of the execution and delivery of this Agreement and the Husband shall thereafter have sole use, possession, and occupancy of the Marital Residence without claim from the Wife. In the event that the Wife fails to relocate from the Marital Residence within fifteen (15) days of the execution and delivery of this Agreement, the Husband’s buy-out payment as detailed above shall be reduced by the amount of $250 per day for each day that she continues to reside in the Marital Residence.

1.4  The Husband shall continue to be solely responsible for all costs associated with ownership and maintenance of the Marital Residence without contribution from the Wife, including, without limitation, both past and present, the Mortgage, real estate taxes, repair and maintenance costs, and utility bills, and he shall indemnify and hold Wife harmless for any and all liability attributable to the Marital Residence until she vacates the Marital Residence.

Potential Benefits:  By allowing for an immediate buy-out of the marital residence, the parties do not have to wait for the home to be sold to a third party.  Thus, the real estate market will not have an impact on the distribution of the asset.  As demonstrated above, the immediate buy-out can be effectuated by offsetting an alimony obligation, by offsetting the other party’s interest in another asset, or by way of a lump sum payment from one party to the other.

Potential Pitfalls:  Where there are limited marital assets, buy-outs are sometimes contingent upon one party’s ability to refinance the existing mortgage.  As with any contingency clause, this leaves a margin for error and the potential need for enforcement if that party either fails to act in a timely fashion or is unable to obtain a refinancing loan.

Practice Tip:  A well drafted agreement will provide specific timelines for any contingencies of the buy-out, and will similarly provide guidance as to what happens in the event of the non-occurrence of such contingencies.

B.  SALE OF THE MARITAL RESIDENCE

1.1 Marital Residence. The parties own the former marital home located at 101 Lovers Lane, LaLaLand, New Jersey, (“Marital Home”).  There is an outstanding mortgage on the Marital Home with an approximate balance of $910,703 as of July 24, 2018.  Neither party shall draw additional equity out of the home or allow liens to be placed against it without the other party’s written consent.  The parties agree to list the home for sale with Rena Realtor at a mutually agreed-upon list price as soon as possible following execution of this Agreement unless otherwise mutually agreed in writing.  The parties will cooperate to facilitate showing the property, to achieve the highest price and complete the sale as soon as possible.  The parties will implement any reductions in list price as agreed between them in consideration of the realtor’s recommendations.  The parties will discuss and agree upon necessary repairs in conjunction with the sale in consideration of the relator’s recommendations, and the associated costs will be paid from joint marital funds.  To the extent there are expenses associated with disposing of items that neither party wants to retain when cleaning out the marital home, costs will be paid from joint marital funds, and to the extent there are any proceeds or tax deductions from sale or donation of any such items, the proceeds or deduction will be split 50/50.  The parties shall agree upon a neutral real estate attorney to represent them on the sale of the property.

1.2 In consideration of all of the terms of this Agreement, after payment of routine closing costs, the net proceeds of sale will be distributed equally between the parties. 

Potential Benefits:  By allowing for an immediate listing of the marital residence, the parties do not have to come to an agreement as to the appropriate payment for a buy-out of one party’s interest by the other.  Rather, the real estate market will dictate the value of the asset.

Potential Pitfalls:  Where there are recommendations for repairs prior to listing the home, the parties will sometimes disagree as to whether the repairs are necessary and as to the reasonable costs for same.  Similarly, where there are limited marital assets, the payment for such repairs will sometimes have to be made by one party with credits being addressed at the time of closing.

Practice Tip:  A well drafted agreement will provide specific guidance for the payment of all expenses for the home pending sale.

 C.  INSTALLMENT BUY-OUT

1.1 Marital Residence.  The parties represent that they are joint owners of real property located at 101 Lovers Lane, LaLaLand, New Jersey (the “Marital Residence”).  The parties had the Marital Residence jointly appraised by WeAppraise4U who opined that the Marital Residence has a fair market value of $900,000 and the parties hereby stipulate to said value for same.  The parties further represent that there is an outstanding mortgage balance of $400,000.00 (“Mortgage”).  The parties represent that other than the Mortgage, there are no other debts against the Marital Residence, and therefore the equity in the house is approximately $500,000.  The parties shall remain joint owners of the Marital Residence as Tenants in Common.  The Marital Residence shall be listed for sale based on Wife’s sole discretion, but no later than the Child’s graduation from high school, with a sale to occur after the Child commences college.

1.2 Pending the sale of the Marital Residence, Wife shall continue to have sole use, possession, and occupancy of the Marital Residence.  In consideration for the terms of this Agreement, including but not limited to the delay in sale of the Marital Residence, Wife shall pay to the Husband the sum of $250,000 in five (5) equal annual payments of $50,000.  The Wife’s first such payment shall be paid within thirty (30) days of execution and delivery of this Agreement and then annually thereafter.  Upon Husband’s receipt of the first payment, Husband shall have fifteen (15) days to sign all necessary documents to transfer the Deed and Title to Wife transferring their joint ownership to that of Tenants in Common.  Wife’s counsel shall prepare said documents.  Wife shall be solely responsible for all costs associated with the marital residence, including, but not limited to, the mortgage, utilities, homeowner’s insurance, and real estate taxes except as expressly stated herein.  Husband shall cooperate with Wife to have all expenses for the house transferred to the name of Wife.  Wife shall indemnify and hold Husband harmless for any liability toward the real estate taxes and utilities for the Marital Residence. 

1.3 In the event that Wife elects to list the Marital Residence for sale prior to completion of the five annual installments of $50,000, Wife shall pay the remaining balance due and owing to Husband from the sale proceeds of the Marital Residence within thirty (30) days of the closing on the Marital Residence.

Potential Benefits:  By allowing for an installment buy-out of the marital residence, the party effectuating the buy-out is permitted to make payments over a period of time, as opposed to an immediate lump sum.

In a family with limited assets from which to effectuate an offset, or poor credit of one party preventing the ability to refinance an existing mortgage, this option prevents the parties from ousting the entire family from the home as a result of a divorce.

Potential Pitfalls:  Where there is an installment buy-out, one party is necessarily delaying receipt of their share of the asset as it is being paid over time.  This is not an option for most middle-income divorces, where both parties will require immediate distribution of the equity from the marital residence.

Practice Tip:  A well drafted agreement will provide specific guidance as to the reasons why a party agrees to delay receipt of their share of the asset.

 D.  DELAYING THE SALE OF THE MARITAL RESIDENCE

1.1 Marital Residence.  The parties represent that they are joint owners of real property located at 101 Lovers Lane, LaLaLand, New Jersey (the “Marital Residence”).  The parties had the Marital Residence jointly appraised by WeAppraise4U who opined that the Marital Residence has a fair market value of $900,000 and the parties hereby stipulate to said value for same.  The parties further represent that there is an outstanding mortgage balance of $400,000.00 (“Mortgage”).  The parties represent that other than the Mortgage, there are no other debts against the Marital Residence, and therefore the equity in the house is approximately $500,000.  Within ten (10) days of the execution and delivery of this Agreement, the Mortgage shall be paid in full from marital assets.

1.2 The Marital Residence shall be listed for sale based on Wife’s sole discretion, but no later than the Child’s graduation from high school, with a sale to occur after the Child commences college.  A listing price shall be agreed to by the parties after consideration by the parties of the realtor’s recommendations and if the parties cannot agree to a listing agent or listing price, then their matrimonial lawyers shall agree upon the real estate broker, and the real estate broker shall determine the initial listing price which shall be binding absent good cause.  The parties shall consider the recommendations of the real estate agent in reducing the listing price.  Notwithstanding the foregoing, the parties may seek to sell the Marital Residence via a private sale commencing no earlier than the Spring of 2021.  In the event that there are any repairs or improvements recommended by the real estate broker to be made to the Marital Residence prior to its sale or in preparation for the listing of the Marital Residence, the parties shall equally share said costs, or, if one party lays out these funds, then the other party shall reimburse the other from his/her share of the Net Sale Proceeds from the Marital Residence at the time that the Marital Residence is sold.  The parties shall cooperate with the real estate agent’s recommendations in terms of any improvements needed to the Marital Residence prior to the sale.  If the parties cannot agree upon whether the repair is necessary to sell the Marital Residence, then absent a good faith reason to the contrary, the reasonable recommendation of the parties’ realtor shall be determinative as supported by a letter from the realtor.

1.3 Upon the sale of the Marital Residence, from the gross sale proceeds, the parties shall pay all closing costs, including, but not limited to realtor’s commissions, realty transfer tax, real estate attorney’s fees and all other expenses directly related to the sale of the Marital Residence.  The net sale proceeds from the sale of the Marital Residence shall be equally shared between the parties subject to any credits due to either party.

1.4 At the time that the Marital Residence is scheduled to be listed for sale, Wife shall have the right of first refusal to purchase the Husband’s one-half interest in the value of the Marital Residence.  If the Wife elects to not exercise her right of first refusal, the Husband shall have the second right of refusal to purchase Wife’s one-half interest in the value of the Marital Residence.  Fair value of the Marital Residence shall be determined by the parties’ agreement.  If the parties disagree as to the fair market value of the Marital Residence , the parties shall retain WeAppraise4U to conduct a formal appraisal of the Marital Residence, the costs for which shall be equally paid by the parties, and the appraised value shall be used to negotiate the fair market value.  Each party’s interest shall be one-half of the agreed upon fair market value of the Marital Residence at that time.

1.5 Until the Marital Residence is sold, the Wife shall continue to have exclusive use, occupancy and possession of the Marital Residence.  Following the entry of the Judgment of Divorce and continuing until the sale of the Marital Residence, the Wife shall be solely responsible for the utility charges and general maintenance of the Marital Residence.  Following the entry of the Judgment of Divorce and continuing until the sale of the Marital Residence, the parties shall be equally responsible for the real estate taxes, homeowners insurance, and non-cosmetic repairs to the Marital Residence exceeding $500 per repair.  Consistent with the status quo, the Husband shall continue to be solely responsible for all bills for the Marital Residence through the entry of the Judgment of Divorce, which shall be paid within ten (10) days of presentation.

Potential Benefits:  By allowing for a delay in the sale of the marital residence, the parties do not have to oust the entire family from the home as a result of a divorce.  As detailed above, children with special needs or children approaching certain milestones will frequently be the driving force behind this approach.

Potential Pitfalls:  Where there is a delay in listing the home, one party is necessarily delaying receipt of their share of the asset.  This is not an option for most middle-income divorces, where there are limited marital assets aside from the marital residence.

Practice Tip:  A well drafted agreement will provide specific guidance as to the consideration that party receives for delaying receipt of their share of the asset.

CONCLUSION

In a real estate transaction involving the parties to a family law case, it is imperative for the real estate lawyer to have a working knowledge of the language used in their settlement agreement or judgment of divorce distributing the parties’ real estate interests.  Similarly, in a family law case involving the distribution of real estate interests, it is imperative for the family law attorney to have a working knowledge of the future real estate issues which may arise upon the sale of the property.  Well drafted settlement agreements in the family law case will help the parties avoid future litigation of these issues, and will similarly prevent future headaches for the parties’ future real estate counsel.