Buying or selling a house when you are going through a divorce can have hurdles that don’t happen in other home selling and buying situations. This article discusses some of those hurdles and how to make things move along easier when spouses are going through a divorce and are buying or selling a house or other real estate when a divorce case is pending.
Selling a Home During the Divorce Case – Automatic Injunction
In every Colorado divorce case, there is an automatic court order that prohibits the parties from selling a home or other real estate, with only a few limited exceptions. Colorado law says:
- (b) (I) Upon the filing of a petition for dissolution of marriage or legal separation by the petitioner or copetitioner or by a legal guardian or conservator on behalf of one of the parties and upon personal service of the petition and summons on the respondent or upon waiver and acceptance of service by the respondent, a temporary injunction shall be in effect against both parties until the final decree is entered or the petition is dismissed or until further order of the court:
- (A) Restraining both parties from transferring, encumbering, concealing, or in any way disposing of, without the consent of the other party or an order of the court, any marital property, except in the usual course of business or for the necessities of life and requiring each party to notify the other party of any proposed extraordinary expenditures and to account to the court for all extraordinary expenditures made after the injunction is in effect….
See C.R.S. Section 14-10-107(4)(b)(I).
Issues regarding “ordinary course of business” or “necessities of life” that would allow a home to be sold during the divorce if one of the parties objects to the sale, are determined on a case by case basis. For example, if a husband is in the business of “flipping” homes, a real estate sale while a divorce case is pending might be “in the ordinary course of business.” If a husband, wife or child is critically ill and there is no other means to pay for the necessary medical care needed, a sale of the home might be “for the necessities of life.” Other necessities of life may include things like food, clothing, vehicle payments, insurance and attorney fees in the divorce case (but judges have discretion to decide which things actually are “necessities of life”).
Entering into an agreement to sell a home or other real estate while the divorce case is happening is the easiest way to get it done. The agreement should be in writing, signed by the parties and filed with the Court. The agreement should if possible include terms: (1) identifying the real estate being sold; (2) identifying the listing broker; (3) stating whether the listing broker is a seller’s agent or transaction broker; (4) stating the listing price; and (5) stating how sale proceeds will be divided or who will hold the funds in escrow. The agreement should be filed with “suppressed” status in the Court’s electronic filing system if that is possible, so that nosey buyers and their brokers don’t see the divorce case selling agreement terms filed with the Court.
If the parties don’t agree on selling the home or other real estate during the temporary orders period (i.e. while the divorce case is pending), either party can ask the Court for a “temporary order” to sell the home or other real estate. However, courts rarely grant requests to have a home or other real estate sold during the temporary orders period, unless there “extreme financial circumstances” and the parties are in a “grave” situation where the property is at risk of being lost if the sale does not happen. See In re Marriage of Gavend, 781 P.2d 161 (Colo. App. 1989).
Parties should strongly consider having the listing broker be a “transaction broker” and not a “seller’s agent.” That’s because a seller’s agent owes fiduciary duties to both sellers in a divorce case (both spouses), and each spouse in a divorce case may have different goals about the real estate sale.
For example, if a mother is working full time and paying child support and maintenance to her husband who is not working and is at home with the children, the mother might want the house to sell faster than the father who is home with the children. Those conflicting interests might make seller agency for the listing broker a difficult or impossible role. A transaction broker does not owe fiduciary duties to the spouses, so things might go smoother with a transaction broker.
Buying a Home During the Divorce Case – Uncertainty
Buying a home during the divorce case is a risky proposition in most cases, even if both sides agree that the new home purchased will be the sole and separate property of the spouse buying the home. There are a few reasons why this is so risky:
(1) the buyer might not be approved for mortgage loan financing after the home is under contract, because many lenders won’t provide a mortgage loan until after the divorce case is completed;
(2) the buyer might qualify for financing while the divorce case is pending, but by the time the closing occurs the buyer’s financial situation has changed due to temporary orders, permanent orders or settlement that affect which debts, expenses, child support, maintenance and attorney fees the buyer is obligated to pay;
(3) no one knows what the final outcome of the divorce case will be, so buying a home while the case is pending might not be the best financial decision; and
(4) if there is not an agreement that the home or real estate purchased will be the sole and separate property of the buyer, then the judge in the divorce case might award the newly purchased home or real estate to the other spouse even if the other spouse is not a borrower on the new mortgage and is not on the title to the new home or real estate.
If there is a good reason to buy a new home or other real estate while the divorce is pending, entering into an agreement within the divorce case that is happening is the easiest way to get it done. The agreement should be in writing, signed by the parties and filed with the Court. The agreement should if possible include terms:
(1) identifying the real estate being purchased;
(2) identifying where the money is coming from to purchase the new home or new real estate;
(3) stating whether the new home or new real estate will be “marital” property which can be divided later or “separate property” which will stay with the buyer after the divorce; and
(4) stating who is responsible for the mortgage and other expenses. The agreement should be filed with “suppressed” status in the Court’s electronic filing system if that is possible, so that nosey sellers and their brokers don’t see the divorce case buying agreement terms filed with the Court.
Another consideration when buying a new home or real estate during a divorce case is how to fill out the mortgage loan application. In divorce cases, each party will need to complete a Sworn Financial Statement and Supporting Schedules, and provide the other party with other financial disclosure documents. There may also be answers to interrogatories (written questions) and responses to requests for production, where financial information was provided (those things are referred to as “discovery”). The mortgage loan application should be truthful and consistent with the financial disclosures and discovery responses provided in the divorce case, in order to avoid making false statements under oath either in the divorce case or in the mortgage loan application.
While buying or selling a home or other real estate in Colorado is often completed without the use of an attorney, there are special considerations and complex legal issues that arise when buying or selling a home or other real estate in the middle of a divorce case. Consulting an attorney who has knowledge of real estate law and divorce should be part of the plan to buy or sell real estate, while a divorce case is pending in Colorado.