Consideration of costs of sale in New Jersey during divorce.

Often one of the largest assets of a marriage is the marital residence.  When parties own a real property, such as a home, together during a marriage, there is often much contention about how that house should be “divided” during a divorce.  Obviously, a home is simply not an asset that is conducive to cutting down the middle and giving a portion to each person.  Instead, the parties must either decide on or allow the court to determine the value of the home.  Then, the value of the home is divided between the parties.

The division of real property, meaning house or other real estate, is often easiest when the parties decide to sell the property incident to the divorce, because then the sale price of the property is the definite, known value of the property.  Yet, in many cases, one party needs or wants to stay in the residence after the divorce.  In these situations, the parties use their best guesses as to the value of the home and then one party “buys out” the other party.  Typically, this “buy out” is not in the form of one spouse actually giving money to the other party.  Rather, usually it means that the party that is not keeping the house gets more of the parties’ other assets, as long as the marital estate contains other assets.

In New Jersey, when valuing the home for purposes of divorce, the courts, and therefore the parties, will look at the fair market value of the house.  The parties’ may enlist realtors to help ascertain the selling prices of comparable homes in the neighborhood or may look to a website, such as Zillow.com, and then agree on the value.  In other cases, when the cost is deemed necessary, the parties may pay for a formal appraisal of the property at a cost of $250.00 to $500.00 for a residential property.

In addition to determining the fair market value of the home, the parties may ask the court to take into account the potential costs of sale.  Potential costs of sale may include expenses such as realtor commissions and transfer taxes.  For example, a home may have a fair market value of $200,000.00; however, when taking into consideration the cost of selling the home and paying a realtor and transfer taxes, which are often in the neighborhood of six percent, the home might only have a value of $188,000.00.

New Jersey case law is clear that the courts will not consider potential costs of sale when the parties are simply transferring the home from joint ownership to one party.  See Wadlow v. Wadlow, 491 A.2d 757 (Super. Ct. 1985).  In other words, the courts will not discount the fair market value of the home if one spouse is keeping the house and buying out the other spouse.  On the other hand, New Jersey case law appears to be open to considering potential costs of sale if there is definitive proof that the house is going to be sold to a third party.  See Daly v. Daly, 432 A.2d 113 (Super. Ct. 1981).  The reason that New Jersey courts differentiate between these two situations is because in the case where one party is keeping the home after the divorce, there is no proof that the costs of sale will ever actually be incurred.  In contrast, if there is proof that the parties are going to sell the home to a third party, then the costs of sale likely will be incurred and are worth considering.

When going through a divorce in New Jersey, it is important to understand how your home might be valued, because it could impact the overall distribution of assets in your case.  Make sure that you consult with an attorney to discuss the impact of valuation of real property during equitable distribution. 

Written by Elizabeth A. Bokermann, Esquire, associate attorney at the Law Offices of Linda A. Kerns, LLC.