February 8, 2022
It is often the case that the marital home is sold as
part of a couple’s divorce, and the proceeds split.
When this happens, any costs associated with the
sale of the home are essentially split between the
parties. This is because these expenses come out of
the proceeds, which are then divided between the
two individuals.
These expenses include the commission to the real
estate agent, taxes, stamp fees, recording fees,
attorney fees, fees associated with paying off a
mortgage.
We are often asked whether these expenses should
be factored into the value of the home even though it
is not going to be sold right away. Usually, it is the
spouse who is assuming the house that brings this
issue up, since they feel these expenses can
substantially reduce the actual value of the property.
For example, a house that is worth $1,000,000 may
be subject to a 6% real estate fee which alone would
take $60,000 off the value.
Although it is true that one does not actually receive
the full sale price of the house, it is not always
appropriate to take off the selling costs. Sometimes it
makes sense if a sale is definitely going to happen in
the near future. For instance, if Sally is going to stay
in the house with an agreement (outlined in the
divorce decree) that she will put it up for sale within 3
months, then deducting closing costs and fees makes
sense.
If Sally has no concrete plan to sell in the near future,
there is no justification for reducing the current value
by these potential costs. The probability of the sale at
the figures discussed is subject to any number of
factors that could change the outcome:
o Sally may say that she’s going to sell the house in
one year, but she could change her mind.
o The real estate market could experience a slump
and the value of the house go down.
o Sally could sell the house without using an agent.
o There could be some home damage (or
unforeseen issues) that reduce the home value.
These are just a few of the ways the value of the
house and the proceeds from the sale could vary from
the numbers discussed during divorce negotiations.
Not only could the actual value change dramatically,
but the assumed costs based on the value of the
house at the time of the divorce could then change as
well.
When a party takes over the house, we feel that there
are too many unknowns to justify reducing the value
by closing costs and fees, unless a sale is imminent.
