What Happens to the House in a Virginia Divorce?

For many couples, real estate is one of their most valuable, if not the most valuable, assets.  As a result, when a couple is going through a divorce, attention, and often anxiety, turns to the disposition of the real estate, especially the primary residence.  The value, potential encumbrances, and illiquidity of real estate complicate division of this asset, requiring careful planning on the part of the divorcing couple and their representatives.  Clients, and their attorneys, must consider the following issues:

Value.  As real estate agents like to say: the value of a home is no more than what a willing buyer would pay for it.  But how do you calculate the value? Some people use the tax assessment.  Tax assessments are considered legally sufficient measures of value in court, and they have the benefit of being freely available as matters of public record.  However, their shortcomings are considerable; for example, often they do not reflect the specifics of a home, namely renovations, and they are quickly outdated.  The ideal indicator of value is an appraisal performed by a qualified appraiser with specific knowledge of the applicable housing market.  While considered the most accurate method of valuing a home, appraisals cost money.  You should expect to pay several hundred dollars for the appraisal and if the issue is contested in divorce proceedings, you may have to pay the appraiser for a court appearance.  Another option is to consult a local real estate agent and request a market analysis.  Agents often will provide these analyses, which generally include an opinion concerning the fair market value and a summary of comparable properties, free of charge.  As with appraisers, however, you should expect to pay the agent for time spent testifying in court.  Virginia’s fairly low threshold for expertise means that a qualified appraiser or real estate agent should be accepted as an expert by the court.

Sale of the home versus a buyout.  The sale of a home makes the valuation question easy if the parties have agreed to their respective percentage interests prior to the sale.  However, there are factors that weigh against the sale of the home for some people.  For example, if the couple has minor children, often the couple will decide that the marital residence should remain unsold so that one party and the children can remain in the home.  Selling a home also has financial costs, particularly real estate agent commissions.  In addition, a mortgaged home that is underwater or near the breakeven point may create risks for the couple.

The parties can avoid these costs by agreeing that one party can purchase the other’s interest in the home.  This is often financially advantageous for the party receiving the buyout, as that party can receive cash representing his or her interest without the uncertainty of the real estate market and often without closing costs (conversely, the attorney for the party purchasing the other’s interest should ensure such projected costs are accounted for in the transaction).  A buyout, however, is not without issues.  Frequently, if the parties lack other, more liquid, assets, it can be difficult to find the cash to buy the other party’s interest.  In those circumstances, the parties may elect to do an offset against other assets, in which a party receives a greater share of, for example, an investment or retirement account as compensation for the real estate interests.   In addition, many couples have mortgage debt in the name of both parties.  When one party remains in the home, concerns arise regarding liability to the mortgage company. While a Property Settlement Agreement may require one party to pay the mortgage, that agreement does not bind the lender, who can still pursue any mortgagee listed on the loan in order to collect its debt.  As a result, it is advisable to require the party remaining in the home to refinance the debt in his or her name only within a specific time period, with consequences for failure to do so.

Disagreement over Disposition. In the event that one party refuses to sell or cooperate in a sale, potential value trapped in an unsold home may be lost, and some courts will not rule on the divorce property issues, therefore enabling the divorce to be finalized, until the marital residence is sold.  Virginia courts have authority to order the sale of a home titled in the name of both parties, but not homes titled in the name of one party, even if the home is considered marital property.

Given the complexity surrounding the division of real estate in a divorce, it is important that parties consult with an experienced divorce attorney familiar with the law governing real estate transactions at the outset of the separation and divorce process.

Richard Collins is an attorney at Collins & Hyman, PLC, with offices in Williamsburg and Newport News.