Dividing a Second Home or Shore House in a New Jersey Divorce

A shore house or second home in a New Jersey divorce usually ends one of three ways: you sell it, one of you keeps it, or you keep owning it together under a written agreement. Which one fits depends on your settlement and the numbers, and on a few tax rules that treat a second home differently from the house you live in.

I'm Dennis Mark Interdonato with The Dennis Mark Group at Keller Williams Realty Ocean Living. Our office is in Point Pleasant, in Ocean County, and I'm a Master CDRE®, trained for home sales during a divorce. When a couple owns two homes, the second one can be the harder conversation, because it's tied to so many memories and plans. The way through is the same as with any property: one set of facts for both of you.

Is a shore house divided the same way as the main house?

That's a legal question for your attorney, and the answer can turn on details like when the house was bought, how it was paid for and whose name is on the deed. What I can tell you is what New Jersey looks at. The equitable distribution law's factors include "the income or property brought to the marriage by each party," any written agreement the two of you made about dividing property, "the present value of the property," and the tax consequences of the proposed split (N.J.S.A. 2A:34-23.1).

The court's Case Information Statement also asks, for each piece of real property, how it's titled, when it was bought, its value and the date of that value, and whether either of you claims it's exempt from division. So pull the deed, the original closing papers and the records of how the house was paid for, and bring them to your attorney early.

What are the options for a second home in a divorce?

• Sell it. The cleanest break. The net proceeds are divided the way your agreement or order says.
• One of you keeps it. That takes a value both sides accept, and usually a refinance into one name. In New Jersey, the realty transfer fee doesn't apply to a deed between spouses, or to a deed recorded within 90 days after a divorce decree that ends the marriage between the two of you, according to the NJ Division of Taxation. Confirm the timing with your attorney before the deed is signed.
• Keep it together. Some couples keep a shore house for a while after the divorce. If you go that way, the agreement has to answer a lot of questions in writing: who pays the mortgage, taxes, insurance and repairs; who uses which weeks; who gets any rental income; and how and when it gets sold, including what happens if one of you wants out first. Those are questions for your attorney.

How are taxes different on a second home?

The big one is the home-sale exclusion. IRS Publication 523 lets a seller exclude up to $250,000 of gain, or $500,000 for a married couple filing jointly, but only on the sale of a main home, and you have only one main home at a time. If you split time between two houses, the IRS looks at the facts, and the most important one is where you spend the most time. A shore house you use part of the year generally won't qualify the way your main home does.

A transfer between spouses works differently. According to IRS Publication 504, no gain or loss is recognized on a transfer of property to a spouse, or to a former spouse when it's incident to the divorce, and the spouse who receives it takes over the same tax basis. That basis matters later, when that spouse sells.

On the New Jersey side, the seller pays the realty transfer fee when the deed is recorded. If the sale price is over $1 million, the seller also pays the state's graduated percent fee, which starts at 1% of the amount above $1 million, per the NJ Division of Taxation. All of this belongs in the net-proceeds estimate, and all of it belongs in front of your tax professional. For the main-home side, see do you pay tax when you sell your home in New Jersey.

What if the shore house is rented out?

Then the listing plan has to account for the bookings. Before we list, I need to know what's already booked, how long each rental runs and how much notice tenants get before a showing. Ask your attorney who holds the rental deposits, how rental income is handled until the sale, and whether bookings can continue once the house is under contract.

If the house will sit empty between seasons or while it's for sale, call your insurance agent. The New Jersey Department of Banking and Insurance's summary of homeowners policies lists losses when a house is vacant for the number of days your policy specifies among the common exclusions.

How do you value two homes fairly?

If one of you wants the main house and the other wants the shore house, a swap can look simple. It only works if both homes are valued the same way, at the same time, with the mortgages and the costs of sale accounted for on each. I prepare both market evaluations from recent closed sales and send them to both owners at once. A shore home is compared with shore sales, not with homes inland. Start with the home valuation tool for a first look at either property.

Then the attorneys decide what the numbers mean for your settlement. My job is to make sure the numbers are real. See what divorce attorneys and mediators want from your realtor.

Frequently Asked Questions

Do we have to sell the shore house in a divorce?

No. You can sell it, one of you can keep it, or you can keep it together under a written agreement. Which one is right is a decision for the two of you and your attorneys.

Does the $500,000 capital gains exclusion apply to a shore house?

Generally, the exclusion in IRS Publication 523 applies only to the sale of your main home. Ask your tax professional how it applies to your homes and your dates.

Is there a transfer fee if one of us deeds the shore house to the other?

New Jersey's realty transfer fee doesn't apply to a deed between spouses, or to a deed recorded within 90 days after a divorce decree that ends the marriage between the two of you. Timing matters, so confirm it with your attorney.

Can we keep renting the shore house while it's for sale?

Often the bookings can be worked around, but how rental income and deposits are handled is a question for your attorney. The showing plan is built around whatever you decide.

This is general information, not legal, tax or lending advice.

About the author

Dennis Mark Interdonato is a REALTOR® and Master CDRE® who leads The Dennis Mark Group at Keller Williams Realty Ocean Living in Point Pleasant, NJ, helping buyers and sellers throughout New Jersey make their next move, with Monmouth and Ocean County as home base. Read more about Dennis Mark.

Keep reading

• The divorce home sale guide
• Selling a home during a New Jersey divorce
• Selling a divorce home with little or no equity
• Have a question this didn't answer? Send it to Dennis Mark.