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Real Estate Taxes and Divorce

Posted by Richard DeMichele | Feb 05, 2015 | 0 Comments

Real Estate Taxes and Equitable Distribution; Value From Two Different Perspectives

It's the family residence, but in the divorce context, we're dealing with the former marital home.  

“Can I keep our home?” is a question that divorce lawyers hear on a regular basis.

The answer is a familiar one for lawyers providing advice to clients: “It depends.”

On what? For starters: the parties finances, cash flow, and the marital home's value. For the purposes of proceeding with your divorce, and to avoid problems in the future,  it is important to have a solid understanding of your home's value.

Having the former marital home apprised in a divorce is not unusual.  In fact, it is so common that the court's standard case management order has a preprinted portion to deal with an expert valuation of the former marital home.  During the discovery phase of a divorce the parties can agree on a vale of the marital home or can hire a joint real estate appraiser or each retain their own appraiser.  Couples who are familiar with real estate values and can agree  on a value will stipulate to the homes value without hiring a real estate appraiser.  In some cases  a trusted Realtor can assist in this approach.

People considering stipulating as to a home's value  should do so with caution. Many times a marital settlement agreement or property settlement agreement  is centered on the the former marital home and its value.  If the agreement is premised on a stipulated fair market value and the agreed value is not reflective of fair market value the divorce agreement can become very one sided and unfair. For example,  if one party kept the marital home with a stipulated market value of $500,000 and that property had a $400,000 mortgage, the net equity of the home would be $100,000.  ($500,000 -$400,000 =$100,000.)  Now if the other party received a bank account worth $100,000 this wold appear to be a fair exchange.  But what if the parties were incorrect in their stipulated value  of $500,000 for the home and the actual market value is only $450,000.  In this situation the asset exchange is hardly fair. An inaccurate stipulated value for a marital home in divorce can also be problematic when the property settlement agreement requires one party to refinance the home after the divorce is final.  If the property settlement agreement requires refinancing of the mortgage the lender will require the property have a minimum value for refinancing.  This is commonly referred to a s a loan to value ratio.  If the actual value of the real estate is lover than stipulated or anticipated refinancing may not be an option and could put one party in violation of the property settlement agreement. With the above pitfalls noted, it is not uncommon for the parties to agree to a joint real estate appraiser. This saves on litigation costs (i.e. only hiring one expert as opposed to two) and also avoids legal fees associated with advocacy based on the potential divergent  valuations. Obviously, for a joint real estate appraiser to be  effective both parties and their attorneys must have faith in real estate appraiser.  Another advantage to hiring a real estate appraiser and having an accurate assessment of fair market value is the potential of having the property's real estate taxes lowered.  In the context of a divorce this can be very helpful. All real estate in New Jersey has an assessed value.  This assessed value is set by the municipalities tax assessor.  It is relative value of the taxpayer's home value compared with other real estate values in a municipality at the time of evaluation.  Often times the assessed vale of a home is NOT reflective of fair market value.  You should not rely on an assessed value in determining a homes fair market value in a divorce context.  However, this is not to say that knowing your homes assessed value is not important and valuable. First lets discuss how an assessed value is important.   A tax rate is applied to the property's assessed value and the actual property tax amount is determined.  Said another way, the town tax assessor takes the town's tax rate and multiplies it against the property's assessed value to determine the properties total tax obligation.  Municipal tax rates are usually expressed in dollars per one thousand dollars of assessed value.   You cannot challenge the property tax rate applied to your property but you can challenge the assessment.  A lower assessment means a lower property tax. Here is how knowing the homes assessed value is important in the divorce context.   If you want to retain the former marital home in your divorce you should compare the market value of your home against the assessed value of the home.  If you are successful in retaining the home in the divorce you may want to apply for a property tax reduction.  A lower property tax in the future may make the house more affordable.  In contrast, if you do not want to retain the former marital home, knowing that it may be eligible for a property tax reduction may give you added leverage in negotiating the buyout.   There are many considerations in determining whether a property's assessment may be subject to a reduction so ask your attorney whether this is appropriate in your particular circumstance. The benefits in  reducing your property tax are more than just the lower tax paid on an annual basis.  A lower property tax obligation can help a home owner qualify for a mortgage or refinancing.  Property taxes are almost always an element in obtaining mortgage financing.  This may be very important if refinancing of a mortgage is required in the property settlement agreement. Additionally,  a lowered property tax will make a property that is for sale more attractive.  If you are trying to sell your home as part of your divorce a lower property tax can make your home more attractive than other similar homes.  In sum, there are numerous benefits to a reduced property tax obligation and every application for property tax reduction starts with a an accurate determination of fair market value. If you or a loved one have questions regarding the New Jersey divorce process or real estate tax appeals, please contact us or call us at (856)546-1350 to schedule a confidential consultation with our experienced New Jersey divorce and property tax appeal attorneys.

About the Author

Richard DeMichele

Richard A. DeMichele, Jr. is a seasoned litigator, devoting a substantial part of his practice to family law and personal injury matters.


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