By Sandra Fava and Eric Solotoff
Rising mortgage interest rates and a slowing housing market have increased the focus on the current value of the marital home. Case law is clear that a marital home is valued as of the date of trial, but appraisals are often done several months earlier. In a volatile market, the marital residence – long thought of as a key marital asset – may no longer steadily increase in value.
Problems Assessing Real Estate Value
In a September 2008 case, the Complaint for Divorce was filed in September 2006, and the original appraisal of the marital home was completed in April 2007. During the trial, both real estate experts testified that their profession was resisting making adjustments for time prior to early 2008, when housing prices plummeted.
The original appraiser updated his report in January 2008 and the value had decreased. The person who wanted to be bought out of the house objected and got his own appraisal in April 2008, which used comparables from the last quarter of 2007. No adjustments for time were made. The original appraiser updated his report for trial in September 2008. Given the post-bubble real estate market at the time, the value had gone down again.
In 2020 and 2021, COVID-19 caused a bump in real estate values. As interest rates started to rise in 2022, the market began to slow and prices receded slightly. Was it wise to buy out the other spouse when values were at historic highs? Is it wise to buy out a spouse now, when values are still high, but may be coming down, and rising interest rates may make it more difficult to sell?
Key Questions and Areas for Concern
- In most cases, appraisals are completed several months before the trial date.
- It often takes several months to get a decision in a trial. This calls into question whether the value at trial is a fair assessment for equitable distribution. If the matter is appealed, the value could be further jeopardized.
- Does it make sense for one party to keep the house and buy out the other spouse’s interest from the equity or offset the other side’s share of the equity against other non-real estate assets? In a declining market, would it be fairer to sell the house, so that the pain is shared equally, and then divide the rest of the assets? The answer depends on a couple of factors.
First, how long does the person getting the house plan to stay? If it is a long time, it may make sense to keep the house; otherwise, the best route may be to sell. Second, how does the sale of the marital property affect the children? It could impact their stability, schooling, and friendships.
Rethinking the Home as a Key Marital Asset
The equitable distribution statute requires a court to examine the income-producing aspect of the assets received in equitable distribution. This calls into question how a court should look at an asset that could decrease in value for the foreseeable future. Depending on the trajectory of the market, it may be necessary to revise our thinking about what to do with the marital home.
For more information on these and other questions regarding divorce in New Jersey, contact Fox Rothschild Family Law attorneys resident in the Morristown office, Eric Solotoff at esolotoff@foxrothschild.com or (973) 994-7501; or Sandra Fava at sfava@foxrothschild.com or (973) 994-7564.