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Jon Hedgepeth, partner with Hedgepeth, Heredia and Rieder is our guest on today’s All About Real Estate edition of Atlanta Real Estate Forum Radio. Hedgepeth, Heredia and Rieder is a law firm specializing in family law, and Jon discusses the uncomfortable subject of divorce and the process of dealing with jointly owned property when separating.
With 52 percent of all marriages ending in divorce, the business of handling jointly owned property can become an issue. Traditionally when dealing with a couple that is separating or divorcing, property has to be sold or one party has to buy the other party out. When having an agreement drafted, Jon says that there are a few things to look for, “Be very careful so that other people don’t know what the specifics may be of the potential sale. Sometimes there are mandatory price drops listed in a settlement agreement that you don’t want someone to read and know exactly when to pounce on a house.” Because of this, Jon regularly speaks to real estate agents to alert them about some of the issues that may arise for the agent and potential buyers when couples who are divorcing sell a home.
When selling a house, proceeds are typically divided between the couple. One person can also buy the other person out of the property by either obtaining a home equity line or finding funds elsewhere to buy the other out. When selling a home, Jon recommends a confidential side agreement, a document referenced in the settlement agreement but not filed with the court. This ensures that anyone with access to the public filing will not be able to access the terms and conditions of the property sale.
Past fluctuations in the real estate market caused arguments about the “debt” of the house more than what the home was worth. Fortunately, the market has changed and those issues have lessened; however, there are still complications when dealing with the debt versus the equity of a property. Equity is the best case scenario and only calls for a strategy to determine how to pay off the mortgage and make the other party whole by giving him or her a share of the equity in the home.
If there is normal consumer debt, that amount is listed in the confidential side agreement. In those conditions, the real estate commission and any mortgages are taken off the top. Then, the remainder of the proceeds is divided up as the parties indicate. When dealing with a home that is under water, there can be issues of short sale where the bank will take the house. In this scenario, both parties walk away. However, a 1099 tax event is created, and the short sale is considered imputed income triggering a tax liability that will come later. Many people don’t expect this, and Jon suggests including instructions for handling such an event in a confidential side agreement. Another common event during the real estate market crash was couples who filed for bankruptcy because they were upside down in their homes. Jon advises not doing this as it will cause a situation similar to the short sale. A 1099 tax event will be created, and the credit of both parties will be negatively impacted for at least seven years.
When a couple decides to move forward with selling a home in the case of a divorce or separation, it is important to be specific about which person will be responsible for different processes involved in the sale of property. For instance, how will an agent be chosen, who will be responsible for paying the mortgage, HOA dues, incidentals and taxes while the home is being sold? Jon also adds that it should be stated that parties living in the home would have to vacate upon closing or within a specific amount of time.
While thinking of these issues can be uncomfortable, John advises that some couples have found the creation of a prenuptial agreement to be beneficial should there be a separation or divorce in the future. In fact, John says that they are extremely popular and take the guesswork out of divorce. He adds, “At least two times per week, I am retained either to draft a prenup for someone or to review a prenuptial agreement that has been prepared by another attorney to give the party insight into what it says and what potential changes can be made to make sure that it is truly a mutually beneficial agreement.”
For any family law questions or needs, contact Hedgepeth, Heredia and Rieder by visiting www.HHRFamilyLaw.com or calling 404-846-7025.
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