How to avoid the Dangers of missing Proceeds Distribution in Divorce Real Estate

by | Nov 18, 2023 | Attorney Resources

Let’s look at including specific directives regarding proceeds distribution and distribution in sale-of-house orders.  The specifics can help the real estate transaction run smoother.   

Of course, they help with enforceability and protection of interests, but here are a few of the issues we see when there are no specific orders or directives regarding proceeds:

Image of small scale house on a table sitting next to a set of keys

Sale sabotage

When parties living in the house have no idea if, when, or how much money they will have when the house sells, this often creates fear, uncertainty and anxiety about listing and selling. Subsequently, this may cause the in-spouse to avoid communication, cooperation, and/or to lack motivation to prepare the home for sale. In a slower moving market (like today), home staging, organization, cleaning and preparation is especially important for marketability.  

Furthermore, the in-spouse may decline showings, attempt to deny access to inspectors and appraisers, delay vacating the home near closing time, and stall the overall sales process. This frequently occurs because there is uncertainty and fear of lack of funds to secure new housing.     

Clarity, knowledge and accurate post-sale plans can encourage more confidence and security, which in turn, may also lessen defensiveness and conflict.  

Image of couple upset looking over papers

Misunderstanding / Overestimation  

Every client who sells their house must line up new housing.  More often than not, the funds to do so will come from the proceeds of the sale. In the flurry of the chaos of a divorce, clients may not realize or have overlooked the fact that the proceeds may not be distributed to them immediately upon sale, are to be disbursed to an attorney’s trust account. Perhaps the proceeds must be used to first pay off a list of debts such as support judgments or other joint debts.  There are numerous scenarios in which a party may overestimate proceeds distribution, only to discover they cannot afford what they anticipated.   

Alternatively, the in-spouse may not realize until too late that disbursement may be delayed post sale, and therefore attempts to delay closing and/or fears moving out due to lack of funds.  Maybe the spouses’ untrained listing agent didn’t know or anticipate a seller leaseback would be needed in this scenario, or guide his/her client correctly because he/she didn’t request a copy of the disbursement orders. 

Lack of clarity and information can lead to delays, conflict and disappointment in a variety of ways.

Overhead view of a house under construction

Closing Delays

Any disagreement or lack of clarity regarding where proceeds will go will need to be sorted out prior to closing and funding.   Depending on the level of conflict and whether the court needs to be involved or not, there may be significant delays and associated costs.   For every sale, there is usually a buyer with a moving van loaded, contractors scheduled, furniture deliveries lined up, utilities set to transfer, mail forwarded, etc.  

Clarity regarding correct proceeds distribution can prevent sellers from causing closing delays.  

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How You can make sure Proceeds Distribution is Done Correctly

Appointing a CDRE® as the listing agent on a case is an effective way to ensure orders are followed and the title company’s distribution instructions match accordingly at closing. 

When I am appointed on a case, I obtain a copy of the court order and inquire about the proceeds distribution on day one to ensure a smoother transaction and understanding. 

If there is no agreement, I flag my file to seek clarification from the parties and counsel until there is one.  

Feel free to reach out to me if you have any questions related to the real estate aspect of your cases. I appreciate the opportunity to work together.

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