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Buyout of Spouse’s Interest in Marital Home After New Jersey Divorce Judgment: A Lesson Learned?

A case decided by the Appellate Division last week is yet another reminder of the serious issues that can arise in splitting-the-house-300x16428452845a New Jersey divorce case, after a Divorce Judgment  is entered requiring one party to purchase the other party’s interest in their home.

In Freeman v. Freeman, the parties’ Divorce Judgment signed on March 15, 2007 required the husband to purchase his wife’s interest in the former marital home for $42,000 within 30 days.

The Judgment also stated that, if the husband failed to do so, the property needed to be sold “at the best possible price obtainable” and the parties would equally divide the net proceeds.

Finally, the Judgment provided that the husband was “fully responsible for the mortgage, homeowner’s insurance and real estate taxes.”

After the husband failed to pay her the required $42,000 or to make the mortgage payments,  the wife applied to the trial court for relief on two separate occasions.

The trial court’s first order—which  turned out to have the most legal significance—authorized the wife “to sign any and all necessary documents to effectuate and complete” the sale of the house.

The trial court signed a subsequent Order, requiring the husband to immediately remove himself from the home, allowing the wife to change the locks, and authorizing the reduction of the listing price of the house to $249,000 as of July 1, 2007 and calling for additional $10,000 reductions every month thereafter in which the house remained unsold.  Therefore, the wife had full control over the sale process.

On January 11, 2008 the trial court entered yet another Order, requiring the husband “to pay all sums due on the mortgage.

The sale closing took place on February 20, 2008.  The sale price was stated as $305,000–more than $50,000 higher than the listing price seven (7) months earlier.  Since the principal balance of the mortgage was about $171,000, the sale should have netted the parties well over $100,000.

However, the Closing Statement reflected net proceeds to sellers of only $12,844.22, as a result of  unexplained reductions totaling $99,800.27.

The wife never paid the husband any part of the $12,844.22.  In addition, it was later revealed that the real estate commission listed as $18,300 in the Closing Statement (6% of the sale price) had been negotiated down to $6,420, thereby creating additional cash of $11,880 that the parties should have shared.

Not surprisingly, the husband filed a motion with the trial court for his share of the sales proceeds.  That application set into motion an extremely lengthy court process which culminated in three (3) separate days of testimony spread over the course of three (3) months (August 2011, September 2011 and October 2011).

Because the wife could not satisfactorily explain the discrepancies or what she did with the money, the trial court found that the wife had been negligent, reconstructed the transaction, and ordered the wife to pay the husband $21,211.17—50% of what the sales proceeds should have been.  The trial court based its conclusion on the proposition that,  when the wife sought and obtained the right to sell the property, she had assumed a fiduciary duty to Husband (a “duty to exercise reasonable skill and care”), and that she had breached that duty.

The wife appealed.  She argued, among other things, that: (1) she had not breached her fiduciary duty to the husband; and (2) that the trial judge should have taken into account the husband’s failure to keep the keep the mortgage current.

In its Decision,  the Appellate Division disagreed with the wife’s first argument.  However, it agreed with her second argument and sent the case back to the trial court for reconsideration.

What is the lesson from this dispute—which is still not completely resolved over four (4) years after the sale closing?   Maybe it’s the realization that, while a buyout of a spouse’s interest in the parties’ home is often the most desirable and best solution in a New Jersey divorce case, the parties’ responsibilities do not end after the entry of the Judgment of Divorce, and both parties need to be sure that they get good legal advice until everything is resolved.

Salvaggio Law Group LLC devotes its entire practice to New Jersey Divorce and Family Law matters, including post-Judgment issues.

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