If a home is acquired during the term of the marriage by either one party or both parties, it will be subject to equitable distribution. The exception to this rule would be if the home was acquired by way of third-party gift, devise, or intestate succession. In those instances, the all or a portion of the equity in the home may be exempt from equitable distribution. In a divorce action, a home is divided either by one party buying out the other party’s interest in the property or a sale to a third party. If there is a buyout, the value of the home must first be determined. Real estate brokers can prepare competitive market analyses (CMA) of the home to estimate a value. The benefit to a CMA is that it is free of charge. The detriment to using a CMA is that it is not as accurate as an appraisal and is not evidentiary if the case goes to trial. The other method to determine the value of a home is through a formal appraisal. When choosing an appraiser, make sure that he/she is licensed by the State to perform appraisals and that the license is in good standing. Ask whether the appraiser does a substantial amount of work in that neighborhood so that he/she knows the “neighborhood variables” that might affect the value of the home.
Once the value of the home is determined, the only appropriate reductions to be taken from that value for purposes of equitable distribution are mortgage and/or HELOC payoffs. You are not permitted to deduct hypothetical brokers’ commissions from the appraised value of a home.
A capital gain is the profit you realize when you sell or exchange property such as real estate or securities. As a New Jersey resident, all of your capital gains, except gains from the sale of exempt obligations, are subject to this State’s income tax. With the signing of the Taxpayer Reform Act in 1997, the IRS allows a married couple to exclude gains of up to $500,000 from their taxable income, while individuals can exclude up to $250,000. To qualify for this exclusion, the house must be your main residence and you must have lived in and maintained ownership of the house for at least two years of the five-year period preceding the sale of the home. However, if one party is retaining the interest to the home and buying the other party out, the party retaining ownership of the home will be responsible for the entire gain on the house when it is sold. The party transferring their share of the house is no longer responsible for capital gains.
Heidi Ann Lepp is a Certified Matrimonial Law Attorney in Warren, New Jersey and a partner with the law firm of Shimalla, Wechsler, Lepp & D’Onofrio, LLP.