Divorce is a challenging life situation to get through. The process of splitting up is not only emotionally draining but can also be a financial minefield—especially when figuring out what to do with any joint property.
Spouses often have to figure out how to divide the money invested in a home, which can be tricky or contentious. And when you own a condo or co-op, splitting up marital property can become even more fraught.
For instance, you might have to deal with a condo or co-op board when selling or separating joint property. And a condo or co-op's bylaws could affect who ends up with the property or whom you ultimately sell to. So here's the lowdown on how to handle selling or divvying up a condo or co-op in a divorce.
The lowdown on condos and co-ops
Due to the way ownership is structured in a condo or co-op, selling, dividing, or transferring ownership works differently when you and your spouse co-own one of these types of properties.
Condos are classified as real property, complete with a deed of ownership. But you and your spouse aren't the only ones calling the shots when deciding what to do with your condo. The watchful eyes of the condo board also have a vested interest in the condo community and might have a say in who stays or moves in.
On the other hand, co-ops are classified as personal property because you don't own the unit or get a deed of ownership. Instead, you buy shares and "own" the entire building with the other residents. Though your proprietary lease gives you the right to live in your apartment, it doesn't guarantee either spouse can stay if you divorce (or can transfer the lease or sell to a third party).
Divorcing when you own a condo
Sometimes dividing up a condo is similar to dividing up a house during a divorce. However, the bylaws of your particular condo might have some stipulations that affect a sale or transfer.
"Some condominiums have a right of first refusal, which will need to be waived by the condo board to effectuate the sale or transfer to one spouse or third-party purchaser," says Kenneth Glasser, an attorney at Gallet Dreyer & Berkley in New York City. "The condominium may also require the condo board to approve a sale or transfer."
Divorcing when you own a co-op
Unlike a condo, every co-op comes with a board. So whether you want to transfer ownership to one spouse or sell the unit will come down to board approval.
So if one spouse wants to sell his or her interest to the other, it might not be so simple.
"Co-op boards could reject the transfer of shares if they do not feel that the retaining spouse has the financial means upon the dissolution of marriage to afford the apartment on their own," says Glasser.
The workaround to that? The spouse leaving could transfer ownership to the spouse staying before the divorce is finalized to avert the vetting process required by the co-op board.
Just be sure to keep your finances remaining in good order. A co-op board can vote to evict a couple if, for instance, money issues crop up during the divorce and you fall behind on paying maintenance fees.
Selling your co-op
The co-op board must still approve the sale if both spouses want to sell.
And approval comes only after a vigorous vetting process, including a deep dive into the potential buyer's finances, background checks, and written referrals. And while you might think a buyer is a top-notch candidate, the board can reject a buyer for any reason as long it doesn't discriminate per the Fair Housing Act.
When to sell your condo or co-op
If a divorce is on the horizon, it might be a good idea to plan your exit strategy sooner than later. For example, listing and selling your condo before a final split can save time, money, and hassle.
"The main benefit of selling early is that you and your partner will easily be able to divide the proceeds," says Nicole Sodoma, an attorney at Sodoma Law. "Also, if you need money to buy another property or pay for additional expenses, the extra money will be great."
When you sell a condo or co-op before your divorce, you'll be paying only the typical real estate fees associated with selling your home. But if you wait until you're knee-deep into the divorce proceeding, you'll probably need to lawyer up and pay hourly attorney and court fees to ensure everyone gets a fair shake.
And if you stay legally married during the sale, you could pay less in capital gains taxes on the proceeds—married couples can exclude up to $500,000 of the home equity from the capital gains tax. (If you're single, you can deduct only up to $250,000.)
To avoid surprises, find a real estate agent and an attorney experienced in dealing with condos and co-ops during a divorce.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
