Splitting the Proceeds: Costs to Plan for at a Divorce Closing in New Jersey

At a divorce closing in New Jersey, what you divide isn't the sale price. It's what's left after the mortgage payoffs, any liens, the seller's realty transfer fee, the commission, the legal fees and the closing adjustments come out, and that net is then paid out or held the way your settlement agreement or court order says. Planning for those costs early keeps the last week of the sale from turning into one more argument.

I'm Dennis Mark Interdonato, a REALTOR® and Master CDRE® with The Dennis Mark Group at Keller Williams Realty Ocean Living. In a divorce home sale, I give both owners the same value and the same net-proceeds estimate, so the people dividing the money are working from one number. Here's what goes on that estimate. This is general information, not legal, tax or lending advice.

Who decides how the money is split?

Not the closing table. You and your spouse settle it in your agreement, or the court decides it. New Jersey's equitable distribution law doesn't set a fixed percentage. It lists factors the court weighs, including the present value of the property and the debts and liabilities of each spouse (N.J.S.A. 2A:34-23.1).

Before closing, your attorneys tell the closing agent in writing how the net proceeds are to be paid out or held. If your agreement won't be final by closing day, ask your attorneys now how the money will be held until it is.

What comes out of the sale price first?

1. The mortgage payoff, and any second loan

The lender provides a payoff figure for the closing date, and it's paid from the sale. Don't forget a home equity line of credit or a second mortgage. The payoff matters in a divorce for another reason: the CFPB says a divorce decree can assign a debt to one spouse, but a creditor can still collect from anyone whose name appears as a borrower. Paying the loan off at closing settles it for both of you. Missed payments during the sale add to what's owed, so keep the loan current while the home is on the market.

2. Liens and judgments

The buyer's title search shows anything recorded against the property. Whatever has to be cleared for the buyer to get clear title is normally paid from the seller's side before anyone receives a check. Think tax liens, judgments, and any property taxes or town charges that have fallen behind. If either of you knows about a judgment or an old lien, tell your attorney at the start.

3. New Jersey's realty transfer fee

The NJ Division of Taxation imposes the realty transfer fee on the seller when the deed is recorded. It's figured from the price on the deed at graduated rates per $500, with reduced rate tables for senior citizens, blind or disabled persons, and low and moderate income housing. On a sale over $1,000,000 there's also a Graduated Percent Fee of 1% to 3.5% of the total price, and the Division says the seller is statutorily responsible for both. Its guidance adds that the parties can shift who pays the Graduated Percent Fee in their contract negotiations.

If one of you is buying the other out instead of selling, the fee works differently. Here's when a deed between spouses is exempt.

4. The real estate commission

The commission is agreed in the listing contract, and it's paid at closing like the other costs. When you compare agents, compare what the service includes, not only the fee.

5. Legal fees for the sale

The attorney handling the real estate closing may be a different person from the attorneys handling the divorce. Find out early who represents the sellers on the sale, what it costs, and whether your agreement says how that bill is paid.

6. Closing adjustments

Property taxes and municipal charges such as water and sewer are typically adjusted between buyer and seller as of the closing date, so each side pays for the time it owns the home. Every line shows on the closing statement.

7. Certificates and town requirements

New Jersey's Uniform Fire Code requires a certificate of smoke alarm compliance before a one- or two-family home is sold, and the owner can only get it through the town where the home is located. The certificate is valid for six months (NJ Department of Community Affairs). Ask the town about any other resale requirements, too. On a court-appointed sale I handled in Monmouth County, one owner tried to stall all the way to the township's final inspection, which is why these items go on the calendar on day one.

8. A nonresident seller's estimated tax

Every seller completes a GIT/REP form to record the deed. The NJ Division of Taxation says a resident who sells and moves out of New Jersey is considered a nonresident for the sale, and an estimated tax payment may be due at closing. If either of you has moved out of state, tell your attorney early so it isn't a surprise on the settlement statement.

How do you get a number you can plan with?

Start with the value. A home value estimate both of you can see is the first line of the net-proceeds sheet. From there I add the payoff figures you provide, the estimated transfer fee, the commission and the other known closing costs. Both owners get the same sheet at the same time. When a number changes, it changes for both of you.

Then price the house to sell in the first two weeks. That's when the price gets set, and every week after that is another mortgage payment, another tax bill and another month of two owners waiting.

Why might some of the money be held after closing?

Don't assume each of you walks out of closing with a check. The closing ends the sale. It doesn't always end the divorce, and the written instructions your attorneys give the closing agent may say to hold some or all of the net proceeds until the open issues are settled. When a marital home is sold before final distribution, the New Jersey Supreme Court has said that in many cases the proceeds should be placed in escrow until that distribution (Randazzo v. Randazzo, 2005).

A hold doesn't mean the sale failed. The buyer owns the house, and the money is waiting on the legal side of your case. The closing agent follows the written instructions it receives and doesn't interpret your agreement, and I don't decide or calculate the split either. What I do is make sure both attorneys and the title company are working from the same paperwork, and set this expectation at the start, so nobody plans their next move around money that isn't free yet.

What are the most common surprises?

• A home equity line nobody mentioned until the payoff letter arrived
• Assuming the split is 50/50 because both names are on the deed
• A town requirement that needs a contractor in the last two weeks
• An estimated tax payment for the owner who moved out of state
• Payments missed during the sale, which raise the payoff
• Expecting a check at the table when the instructions say to hold the money

Frequently Asked Questions

Who pays the realty transfer fee in a divorce sale?

On a sale to an outside buyer, the NJ Division of Taxation says the seller is statutorily responsible for it. How that cost is shared between the two of you is part of your agreement.

Is the money automatically split 50/50 at closing?

No. New Jersey's equitable distribution law doesn't set a fixed percentage. The closing agent follows the written instructions it receives from your attorneys.

Do we both have to be at the closing table?

You don't have to be in the same room. Your attorneys will tell each of you how and when you sign.

Can the proceeds be held until the divorce is final?

They can be, and the New Jersey Supreme Court has said that in many cases they should be. The net proceeds are paid out or held according to the written instructions the closing agent receives, so ask your attorneys early which it will be.

Can we get a net-proceeds estimate before we decide to sell?

Yes. Start with a home value, then add your payoff figures. Both owners and your attorneys see the same estimate.

This is general information, not legal, tax or lending advice. Your attorneys and tax professional should review your own numbers before closing.

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

• Read the divorce home sale guide
• Capital gains and the home sale exclusion in a divorce
• The hidden costs sellers forget about
• Have a question this didn't answer? Send it to Dennis Mark.