We all know that the nation is facing a severe foreclosure crisis,  New York is no different.  Although New York’s reported rate of foreclosure has not reached the level of foreclosures nationwide, it is reported to be 34% more than a year ago.  This is a problem for all involved but is particularly a problem for couples that are divorcing and hope to start life anew with their property’s sale proceeds. 

          In a contested divorce, where the parties have issues to resolve like child custody, property distribution, etc., what happens with the marital home is quite often a major dilemma.  Many people come into the marriage either with no property, property they acquired prior to the marriage or property they own with someone else and then they acquire property with their new spouse.  It is quite typical for married couples to purchase a home together, mainly with the objective of raising their family in it.  Of course property acquisition is not limited to residential property, nor is it limited to the parties’ marital home.  However, in many working class and middle income areas this is the norm. Marriages that last a couple of years or a couple of decades, distribution property upon divorce can be disappointing particularly in this market. I want to take a look at how the property is distributed in contested divorce situations.

          First, the parties must ensure that the mortgage is current.  This is particularly an issue where one party is responsible for paying the entire mortgage while the other party either is a homemaker or covers other expenses as part of their economic agreement. If the mortgage is not current due to the responsible party’s willful failure to pay then either party can request the court to demand that he or she continues to pay the mortgage while the divorce is pending.  Once a judge directs payment, noncompliance can subject that party to contempt of the court penalties, which are as extreme as incarceration.  The problem occurs where delinquency is not deliberate. 

          Next, it is essential to obtain the outstanding mortgage balance.  This may not be possible if only one of the parties happens to be on the mortgage and/or the note.  Therefore, oral or written authorization must be obtained from the other party to speak to the lender.   In addition, determining if there are any other liens against the property should certainly be done.  It is not uncommon for real property to have outstanding tax liens, building code violation liens, parking violation liens, etc. levied against the property.  It is very important to  get as much information regarding these liens as possible and to verify their accuracy.  This is important because if one party is responsible for such liens then the other party may want relieved of any obligations to pay these.

          Next, it is very important to get an idea of what the property is worth.  This may need to be done several times since the market fluctuates and contested divorces can take up to several years to conclude.  And although property appraisers are trained to do this, unlike a few years ago this is not necessary .  Nowadays, one can go to the plethora of websites to get this information. It is advisable to get a few quotes from a number of resources to narrow the margin as to value.  Furthermore, getting a realtor to do this is also not required,  but is certainly very useful it is not too burdensome to do.

          Once the liens have been ascertained and the value determined then the parties have an idea of what the sale proceeds will be.  This is very important because in contested divorces this will help to resolve all other property issues, child support and in some cases child custody.

          New York is an “equitable distribution” state which means that although property acquired during the marriage is subjected to distribution amongst the parties, that distribution is not automatically 50-50%.  The court will examine several factors to determine how much of the proceeds each party should get, if any.  For instance, a husband that was the “breadwinner” for the family and spent a disproportionate amount of the family’s assets on things that did not benefit the family may get less than 50% of the proceeds, out of fairness. Conversely, a homemaker wife that never worked or provided any financial contributions to the family may get less than 50% of the proceeds.  In either of these examples, most courts will look at several other factors when making this determination but for the purpose of this article I have simplified the scenarios.

         Then there are situations where “separate property” was used to acquire the marital property and in equity that party should be compensated. Or one party may prefer to take other property and waive any interest in the sale proceeds in exchange.  Or the court can allow the custodial parent to remain in the marital home until the parties’ youngest child reaches the age of 18, while the noncustodial defers his/her interest until that time comes.  In this case, the custodial parent can be directed to pay all of the carrying charges for the home or direct the noncustodial parent to pay all or some of those charges.  Either way, the noncustodial parent must walk away without the benefit of that part of the parties property, which in some cases is quite a load to bear.  This raises other concerns because several things can happen to deprive the noncustodial party of his interest, even in the future.  If the custodial parent is ordered to pay the costs of the home, he or she can encounter problems that make that impossible.  Should that party buy the other out? Should the house be sold? Should the noncustodial have to pay and if so should that entitle him or her to occupy the home?  Or should the house go into foreclosure?

          That is the dilemma, especially now because of the state of affairs..  There are many individuals that are unable to maintain mortgage payments regardless of which scenarios plays out. Whether it be deliberate or uncontrollable, the fact still remains that many people are losing out on what is in many cases, the only asset they have.  The parties can amicably agree to place the home on the market but still face foreclosure.  The mortgage payments must still be paid and homes are staying on the market a lot longer than previously.  There are times when the parties have resolved their other issues in the contested divorce and have moved on with their lives but for this one last hump.  And for many this causes even more of a financial burden because maintaining the mortgage depletes the little resources left from the divorce, if any were received.

          There is no easy answer to this dilemma.  What many are doing is reaching out to the mortgage companies to find other resolutions.  Unfortunately, many of those options do not offer any solution to the financial burdens many splitting parties face.  Alternatively, many file for bankruptcy, which offers some relief, depending on the parties particular needs. Nonetheless, there is no straightforward or concrete way to undo the harm.  It is just the unfortunate climate many have to deal with with no real relief in sight.

          Please feel free to contact my office to discuss your contested divorce or other family law matters.