Question: My wife and I have been in negotiations for several months now in our efforts to settle our financial differences and get divorced. One area of disagreement has been how to handle our former home which she has occupied since I left last year. Because the equity is rather substantial, we have finally agreed that she will have the right to live there with our son – now age 10 – until he goes to college at which time the house will be sold and the equity divided. But it appears to me that the document our lawyers presented us for signature came right off the word processor and is so general that it will lead to future problems when it’s time for her to leave. Are there any standards that we can include in the agreement to allow for a smooth transition?

Answer: While the goal of a marital agreement is to provide for a full and complete resolution of all marital issues without the need for future litigation, without proper drafting, this objective is seldom accomplished. Good marital agreements are drafted from scratch to meet the specific needs of the parties and are not form documents from the word processor. While proper drafting is more expensive because of the time involved, in the long run, it should pay off. That said, you and your wife are dealing with two separate issues concerning your home -- “use and possession” and “sale”, and each should be addressed specifically.

USE AND POSSESSION OF THE HOME: Your wife’s occupancy should continue until a “qualifying event” occurs which will terminate this right. Here, the only “qualifying event” is your son going to college, but what happens should any of the following events occur beforehand? 1) Your wife remarries? 2) She begins a cohabitation in the home? 3) You gain custody of your son? 4) Your wife or your son dies? 5) Your wife moves from the home and rents it out? 6) Your wife no longer uses the home as her primary residence? 7) Your wife brings in boarders? In our view, each of these potentialities – and possibly others -- should be specifically addressed as should 1) who pays the mortgage, taxes, insurance, and repairs until the qualifying event occurs and 2) rights of inspection during this period to make sure the residence is being properly maintained. You might think about including penalty provisions just in case one party to the agreement does not comply and causes litigation.

SALE OF THE HOME: When the qualifying event occurs, there should be a mechanism in place to allow for the immediate and automatic marketing and sale of the residence without further negotiation or delay. Some suggested areas that should be covered include: 1) A market assessment and listing of the home begin at least two months before the qualifying event occurs in order to get the house on the market as quickly as possible. 2) An agreement as to which realty company will list the residence and, if that entity is no longer in business, an alternate. 3) A provision that you and your wife will both cooperate in the sales process, including your wife showing the home at reasonable times. 4) Provisions concerning who will pay for any damage or refurbishing that may be necessary before the home can be sold. 5) A definition of “net proceeds” which will be ultimately divided between you. Generally, this should be the gross sales price less real estate commissions less closing costs less pro-rata taxes less the cost of refurbishing or repair unless other arrangements have been made.

Last, but certainly not least, the issue of potential capital gains must be considered. Depending on how the home is titled and the length of the occupancy, there may be unanticipated capital gains taxes, so be sure to ask your lawyer or certified public accountant. Should there be the potential of capital gains taxes, you may consider retitling the residence in the name of your wife during this period; however, if this is accomplished, be sure that a mortgage or other lien is filed on the public records to prevent refinancing or sale without your knowledge.