Divorce and the Family Home in New York: The Basics

In a New York divorce, a home bought during the marriage is usually marital property and is divided "equitably," which means fairly, not automatically 50/50. The three common outcomes are a buyout by one spouse, a sale with the proceeds split, or a deferred sale where one spouse stays for a set time, and each comes with its own mortgage, tax and (for co-ops) board-approval steps.

Is the house marital or separate property?

Under Domestic Relations Law §236, marital property is everything either or both spouses acquired during the marriage, before a separation agreement is signed or the divorce case starts, no matter how title is held. Putting the deed in one name does not make the home separate.

Separate property includes:

• Property owned before the marriage.
• Inheritances and gifts from someone other than your spouse.
• Property acquired in exchange for separate property.
• Property a written agreement (such as a prenup) says is separate.

There is a catch: if a home was separate but grew in value partly because of the other spouse's contributions or efforts, that increase is not separate. Mortgage payments from marital income and renovations are common examples that lawyers look at.

When dividing marital property, the court weighs factors listed in the law, including the length of the marriage, each spouse's income and property, health, contributions as a homemaker or parent, tax consequences, and specifically "the need of a custodial parent to occupy or own the marital residence."

Your three main options

Buyout

One spouse keeps the home and pays the other their share of the equity, in cash, by taking less of other assets (such as retirement accounts), or through a distributive award, which the law defines as a payment in place of or in addition to dividing property. Start from an agreed or appraised value minus the mortgage balance and any selling costs you agree to account for. Our home equity calculator helps you see the number.

Sell now

Selling and splitting the net proceeds is the cleanest break. Budget for commissions, transfer taxes and, for a co-op, any flip tax. See how to sell a home in NYC and the seller net proceeds calculator.

Deferred sale

One spouse, often the one with primary custody, stays in the home until a set event, such as a child finishing school, and then the home is sold or bought out. Under DRL §236 the court can make orders about who uses and occupies the marital home regardless of whose name is on the title. A deferred-sale agreement should spell out who pays the mortgage, taxes, insurance and repairs, how improvements are credited, and what triggers the sale.

While the divorce is pending: the automatic orders

When a divorce starts, automatic orders take effect. The spouse who files is bound when the case is filed, and the other spouse when served. Neither may sell, transfer, encumber or otherwise dispose of property, including real estate, without the other's written consent or a court order, except in the usual course of business, for customary household expenses, or to pay reasonable attorney's fees in the case. Do not list the home, refinance or take out a home equity line without one of those.

Removing a spouse from the mortgage

The deed and the mortgage are separate. Signing a deed over to your spouse changes who owns the home, but if you both signed the loan, you both still owe it. A divorce judgment can say who must pay, but the lender is not a party to your divorce. If the spouse who keeps the house stops paying, the lender can still pursue both borrowers, and late payments can show up on both credit reports.

The usual ways to fully remove a spouse are:

• Refinance into one name. The spouse keeping the home applies for a new loan alone, and the old loan is paid off. They must qualify on their own income and debts, possibly including support payments. See when refinancing is worth it and check your ratios with the debt-to-income calculator.
• Lender release or assumption. Some lenders will release one borrower or let the other assume the loan. Whether this is available depends on your loan documents and the servicer. Ask in writing.
• Sell the home and pay off the loan.

A refinance can also be how the buyout is funded, with cash-out proceeds paying the departing spouse. Model it with the cash-out refinance calculator.

Co-ops: the board may need to approve

A co-op apartment is shares plus a proprietary lease, and transfers are governed by the building's proprietary lease and bylaws. Many require board consent to assign the shares, even between spouses, while some allow transfers to a spouse with fewer steps. The board may also want to see that the remaining spouse can carry the maintenance alone. If the buyout involves a new co-op share loan, the lender will need a recognition agreement with the co-op. Read the proprietary lease early, and ask the managing agent what the board requires. See co-op share loans vs mortgages.

Transfer taxes on a divorce transfer

Do not assume a transfer between spouses is tax-free at the state level. The NYS tax department's instructions say a transfer from one spouse to the other under a divorce or separation agreement may be subject to the real estate transfer tax, and that the price is presumed to equal the property's fair market value, because giving up marital rights counts as payment. The presumption can be rebutted.

The NYC Department of Finance's transfer tax page does not list a specific exemption for divorce transfers, and a city return must be filed within 30 days even when no tax is due. Have your attorney or title company confirm how both the state and city returns should be prepared. Background: NYC and NYS transfer taxes.

Federal income tax: the home-sale exclusion

IRS Publication 523 sets out how the $250,000 (single) or $500,000 (married filing jointly) home-sale exclusion works when a couple separates:

• The transfer itself: transferring the home or your share to a spouse or ex-spouse as part of a divorce settlement generally creates no gain or loss. The exception is a spouse who is a nonresident alien.
• Basis carries over: the spouse who receives the home takes over the transferring spouse's adjusted basis, not today's market value. That matters when they sell later.
• Ownership time counts: the receiving spouse can count the time the other spouse owned the home.
• Use can count after moving out: if you still own the home and your ex-spouse is allowed to live there under a divorce or separation instrument, you can treat it as your residence. This helps with deferred sales.
• Partial exclusion: divorce is one of the events that can qualify you for a reduced exclusion if you sell before meeting the two-year tests.

Once you are divorced, each of you generally uses the $250,000 single limit on your own share of the gain. Estimate with the home sale capital gains calculator and see capital gains tax when you sell.

A practical order of steps

1. 1

   Gather the documents

   Deed or stock certificate and proprietary lease, mortgage statement, closing statement from purchase, records of improvements, tax bills.
2. 2

   Agree on a value

   Use a joint appraisal or each get one. For a co-op, recent sales in the building help.
3. 3

   Check whether the keeper can qualify alone

   Talk to a lender before agreeing to a buyout so the deal does not fail at refinance.
4. 4

   For a co-op, ask the board early

   Learn what approval and financial review the transfer needs.
5. 5

   Write it into the agreement

   Value, payment, deadline to refinance, who pays what until then, and what happens if the refinance fails.
6. 6

   Close the transfer properly

   New deed or share assignment, transfer tax returns, recording on ACRIS for deeds, and updated insurance and tax exemptions.

A note on title

Under EPTL §6-2.2, a home (or, since 1996, co-op shares) conveyed to a married couple is held as a tenancy by the entirety unless the deed says otherwise. That form of ownership depends on being married, so the divorce changes how the home is held. Your attorney should make sure the deed or share certificate matches the final agreement. See ways to hold title in New York.