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Selling matrimonial property

Date:1 MAR 2019
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Following a separation with a spouse or partner, it is common for a property to be sold. Jason Weeks, CEO & Co-Founder of Vendorable.com, a global platform for real estate services, looks at this issue.

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    Why the need to sell exists

    Following a separation with a spouse (or partner / de facto / significant other), it is common for a property to be sold. While there are many reasons why this might be the case some common ones include:

  • Financial difficulty, either of a spouse or a spouse’s business;
  • Need for capital after a separation, often for each spouse to purchase a smaller property;
  • Inability to refinance, as often a property is too expensive for a single income spouse; or
  • Emotional baggage attached to an existing matrimonial property.

       What are the risks?

Spouses who have separated, but not yet negotiated or resolved the terms of the matrimonial asset division, are at significant risk when selling real estate assets.

Without an agreement selling a matrimonial property has a high level of risk.

The risk associated in this scenario is amplified when one or both of the spouses are experiencing personal or business financial distress.

Many legal practitioners report clients shopping for representation before spouses have discussed or agreed on separation or divorce. They are looking for a better understanding of their rights and obligations, including those relating to property.

Without a formal agreement between parties, or court orders in place, the process of selling a property can be challenging and potentially treacherous.

Transparency protects all parties

Typically one party is more financially vulnerable than the other. This is often due to a division of responsibilities in the household. Whilst one spouse may take care of the day-to-day financial transactions, the other spouse often has control of all the assets.

Both parties are vulnerable when selling a matrimonial property for different reasons.

While it could be perceived that the party with all the assets in their name is in a position of strength, in fact, they are just as vulnerable as their spouse.

The spouse with control of the assets after a separation is highly vulnerable to the assertion of improper behaviour by the financially vulnerable spouse, even though this may not be the case.

The only way to deal with this is a transparent process: before, during and after a negotiated settlement. 

Joint ownership: mutual agreement and joint instructions

If a property is jointly owned, that is registered in joint names with your former spouse, then it cannot be listed for sale or sold without both spouses’ agreement. The form of this agreement is safest in writing and via a signature.

Where both spouses have agreed to sell a jointly owned property the real estate agent will require joint instructions, agreed upon by the spouses. These instructions will include the listing price, responses to any offers, acceptance of a sale price or sale by auction (including the setting of any reserve).

Sole ownership: information and encumbrance

When selling a property owned by only one spouse, it is essential that the other spouse is kept informed of the progress of the sale and the intended use of the net sale proceeds. Net proceeds are the sale price of the asset minus all costs of sale.

Despite only being registered in one spouse’s name the property is likely to be considered a matrimonial asset and have its value included within the matrimonial pool of assets.

Any threat that the other spouse is being excluded or that the funds may disappear could be met with court proceedings. These proceedings can prevent the sale or secure the net proceeds until the division of those funds is agreed or determined. Vendorable helps reduce this risk by providing the ability to include stakeholders and/or have legal practitioners work in teams together on behalf of their client(s).

Spouses should be wary of the opportunity for the other spouse, who owns a property alone, to further encumber that property without informing them or requiring their consent. The most common types of encumbrance applying to property include mortgages, easements and property tax liens.

Net proceeds: agreement and distribution

Former spouses can agree to any use of the net proceeds of a property sale. This might include:

  • Dividing it between themselves;
  • Using it to pay/reduce other outstanding debts;
  • Meet significant expenses of any child/children such as education fees; or
  • Contribute towards child support or spousal maintenance payments in the interim period until a final property settlement is agreed upon or determined.

The key here is that there is agreement. And often the first, and the largest issue is determining what the net proceeds will be, so there can be agreement on where they will go.

Where a family law property settlement is pending, any proceeds of the sale that each spouse receives will be considered as matrimonial funds and taken into account when a final division of the assets is agreed or determined. This is regardless of the ownership of the asset.

So be sure to maintain good records of your use of those funds, and appreciate that those records are likely to be shared with your former spouse during negotiations of the property settlement or court proceedings.

Disagreement and third parties

In circumstances where former spouses cannot agree on any aspect of selling a matrimonial property, one spouse can apply to Court to appoint a third-party to become responsible for the sale of the property on behalf of both spouses.

Time matters

Time matters for all parties at all stages of the process of matrimonial property separation. In the initial stages, an expedient and transparent assessment of the property/properties value in the matrimonial portfolio can help negotiations.

In addition to an initial assessment, you and your spouse will likely have the need to come back, during and after negotiation to re-assess the value of the assets prior to appointing a service provider. The need for ongoing reassessment is due to the nature of the property cycle which affects both value and service provider pricing/availability.

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