Before selling the marital home, get a separation agreement

By AdvocateDaily.com Staff

Part 2 of a three-part series on the intersection of family law and real estate law, St. Catharines family lawyer Sharon Silbert explores the subject of accessing proceeds from the sale of your home during a marital split.

Couples that are splitting up should seriously consider having a solid separation agreement in place before they sell the marital home and divvy up the proceeds, St. Catharines family lawyer Sharon Silbert tells AdvocateDaily.com.

Both parties have to be on board with whatever happens to the income from the sale if it is jointly owned, says Silbert, principal of Sharon B. Silbert Professional Corporation.

But, more importantly, she points out that selling the home may well be putting the cart before the horse, possibly complicating the family law issues that haven’t yet been addressed.

“If you are talking about a situation where a home is jointly owned by the spouses going through a separation, many assume the proceeds will be divided in half,” Silbert says. “That won’t necessarily be the case if there’s no agreement in place.”

If the parties are not co-operating and there’s no separation agreement, the real estate lawyer acting on conveyancing the property must hold the proceeds in trust, Silbert explains.

“What usually happens when parties stop co-operating and there’s no agreement yet, is that the real estate lawyer would just have to hold that money in trust until an agreement is reached. They’re acting on a joint retainer and can’t take direction from either client as to how to distribute the proceeds of sale without the consent of the other party.

“So, in the absence of an agreement, the money just sits there.”

Splitting the proceeds 50-50 might seem straightforward and might work in some cases, but the parties risk complicating the issues that have not yet been dealt with on the family side, Silbert says.

“One thing that’s important to keep in mind is that the distribution of proceeds of sale can have a significant impact on negotiating dynamics,” she says. “There can be risks associated with agreeing to implement the distribution of the proceeds of sale before support and equalization issues are worked out because of the effect it might have on efforts to settle.”

One of the parties may be happy to take their share and walk away, even though he or she might be obligated to provide support to the other party, for example.

“All of a sudden it becomes an uphill battle for the support recipient to chase the other person,” says Silbert.

Their bargaining power has disappeared, she adds.

By holding back the house money, there is an incentive for both parties to come to the table to work out all the family law issues promptly, Silbert says, adding that when the agreement is completed, the money from the house is then divided according to how it’s addressed in the separation agreement.

So although the real estate law and family law issues aren’t necessarily related to each other, Silbert says the difference is in the willingness of each person to come to the table to work through those legal issues.

“There have been a few situations where people have come to me after separation,” says Silbert. “They wanted to keep things simple so they sold the house and divided the proceeds of sale, but they did so without addressing the other issues. They later found their former spouse unwilling to participate in negotiations related to support or equalization of other assets.

“It can be pretty discouraging to have to go to court because they’ve given up all their bargaining power when a negotiated settlement might have been possible if they insisted that all issues be resolved at the same time.”

Stay tuned for the final instalment of the series where Silbert will address what those paying support need to know about how their obligations impact lending decisions.

To read Part 1 — the perils of purchasing a new home without having a separation agreement in place — click here.

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