Marital Home

Old Entry

In my experience the marital home is always valued by "fair market value" less the outstanding (connected) debt. I have always preferred appraisals using comparables to "market estimates" by realtors and I believe this is a usual preference. Counsel should always consider employing a neutral appraisal (and sharing the cost) as opposed to a war of appraisers, ultimately more expensive and no more likely to yield a satisfactory result.

The issue that arises (over and over) is whether "brokerís fees" should be included in the equation. If the house is to be sold this is a non-issue, for all relevant costs associated with the sale should be included in the bottom line. If the house is certain to be sold within a defined period of time (within a few years) then an adjustment is reasonable. However, if there are no strings attached to the disposition I would be inclined to not put fees in the equation. First of all, it is not certain the house will ever be sold. Second, if it is sold, it is not certain that a broker will be used in the transaction.

In the Ann Arbor market (hot for houses) many people do not feel a broker is necessary to move the product. Third, the "spectre" of a broker, perhaps 20 or more years in the future---perhaps not used at all--- seems to fall within the general rubric of "no reasonably ascertainable present value", in other words, an asset or debt that should not be valued by the court. Does this mean it is wrong to include potential brokerís fees? No. It just wouldnít be my "default" choice.

Tax consequences attached to a sale or hypothetical sale of a residence are relevant to valuing the asset. Note that the rules have changed as to the tax impact of a house sale in May of 1997. For all sales commencing May 5, 1997, gains of up to $ 250,000 on the sale of the taxpayerís principal residence is excluded from federal tax. Note that "gain", in this context, means the sales price less costs minus the "basis" of the property. If the home is jointly owned each taxpayer may exclude $ 250,000 of the gain. There are certain conditions to claim the exclusion (taxpayer must have used the home as a principal residence for 24 months within the past five years prior to sale; a taxpayer who receives the marital home as part of a divorce settlement and sells it within two years might not meet the ownership requirement).

There are also potentials for creativity in using the rule (continuing a joint tenancy post divorce if a greater than $ 250,000 gain is to be realized). Check with your accountant. See MFLJ "One Parent Family" Special Edition at page 27. Sidney, "Tax Considerations For One Parent Families." (Undated Edition, my assumption is that it is the 2000 Edition)

New Entry

Well. things have changed. The housing market has crashed and burned and may continue to do so. So, lately, it has been more likely to throw broker's fees and sales costs into the stew. Ultimately, these are most always matters of negotiation compromise. Also there is a case that holds it is within the trial court's discretion to subtract a real estate commission from a house that isn't subject to imminent sale.

Susan L. Labutte v Todd D. Labutte, Michigan Court of Appeals Docket No.: 230915, Unpublished February 7, 2003, Lower Court No. 98-000406 

Now we are in the age of the short sale. Note, however, if lending agencies agree to these as the bottom line, that the waived deficit may become (as in "is" as of 11/21/07) income to the beneficiary of the short sale. In other words, if a house mortgage of $ 240k is satisfied by a sale netting $ 220k, the IRS says the seller of the property has $ 20k in taxable income.