Drafting divorce settlement agreement provisions to dispose of the marital home is not easy. Anticipating how things will play out can be very difficult.
In some cases, one spouse may be remaining in the home with the children for a stated period of time, or until a stated event (such as the children’s graduation). How are bills to be paid in the interim? Will either spouse be entitled to credits?
What will be the procedures when the time/event happens? At the end of that period of “exclusive occupancy” (or perhaps immediately), the parties will be selling the home. Alternatively, one party may want to buy out the other. If the home is to be sold to a stranger, how is the broker to be selected, if there is to be one? How is the initial listing price determined? Must a certain bid be accepted? What happens if there are no bids?
If one spouse wants to buy out the other, how is the other’s interest to be valued? Should the amount of a broker’s commission be factored in? May one spouse have a “right of first refusal,” the right to match a bid from a third party? How will that work?
Take the April 28, 2022 decision of the Appellate Division, Third Department, in Martin v. Martin. There, the parties’ 2012 divorce settlement agreement granted the husband the right to buy out the wife’s interest. The agreement provided that if the husband elected that option, the parties would obtain three appraisals, The husband would pay the wife half the “mean” (average) of those three appraised values minus a commission.
In December 2015 [yes, it is now 6½ years later], the husband notified the wife that he intended to purchase her interest. He obtained two appraisals of the property. In April 2019, upon the husband’s motion, the Supreme Court, among other things, accepted the two appraisals that the husband obtained in 2015 and directed the wife to promptly obtain a third appraisal to find the December 2015/January 2016 value of the home.
The wife’s appraiser set a significantly higher value for the property; roughly twice the value set by the husbands two appraisals.
In connection with a mortgage application to purchase the wife’s interest, the husband obtained still another appraisal (that happened to fall at a sum lying between the values of the husband’s first two appraisals).
The husband moved, among other things, to set aside the wife’s appraisal and instead use the his third appraisal as the parties’ final appraisal under the agreement. In March 2020, Saratoga County Acting Supreme Court Justice Paul Pelagalli denied the husband’s motion, finding that the first three appraisals from licensed appraisers complied with the plain text of the agreement. The court established the value of the property based upon the mean of those appraisals.
The wife subsequently moved to enforce the judgment of divorce by ordering the husband to pay for her share of the property based on court-determined average and to hold the husband in contempt for failing to do so. In March 2021, Justice Pelagalli refused to hold the husband in contempt, but did order him to pay the wife the amount determined by the average of the three appraisals. The husband appealed from the March 2020 and March 2021 orders.
The parties did not dispute that the first three appraisers were licensed by New York. Each of those individuals submitted their report. Under the literal language of the agreement, the fair market value of the property was required to be determined by computing the mean of those appraisals.
The Appellate Division, Third Department, held that courts may also consider what is reasonably implied by the agreement’s language. Pursuant to Executive Law article 6-E, the Board of Real Estate Appraisal adopts regulations establishing standards for appraisals and prescribing the form and content of appraisal reports. Under those regulations, every appraisal by a certified or licensed real estate appraiser must comply with the provisions and standards set forth in the Uniform Standards of Professional Appraisal Practice (hereinafter USPAP). Thus, a reasonable implication of the parties’ agreement was that by specifying that the appraisers be licensed, the appraisers were required to comply with appraisal standards mandated for state licensed and certified appraisers.
In support of his motion, the husband submitted affidavits from three appraisers, asserting that the wife’s appraiser’s report failed to comply with USPAP standards. The husband also submitted the affidavit testimony of himself and his girlfriend disputing information and statements that the wife’s appraiser included in his report, based upon their personal observations of thje wife’s appraiser during his inspection and their knowledge of the property. Moreover, there were statements within the wife’s appraiser’s affidavit that appeared to contradict some of the sworn statements in his report, primarily concerning his personal observation of the entire premises.
The appellate court held that the husband failed to establish that the wife’s appraisal was tainted by fraud or not performed in good faith. Nonetheless, based upon the conflicting affidavits, the Appellate Division found that a hearing on the limited factual issue posed was required before deciding the motion. If at that hearing it is established that the wife’s appraiser did not substantially comply with the mandatory USPAP standards, his appraisal should not be considered as one of the three appraisals required by the parties’ agreement. However, if the court determines following this hearing that the wife’s appraiser did substantially comply with those standards, his appraisal should be considered along with the husband’s first two appraisals, and the husband would be required to pay the wife her share of equity in the property based upon the mean of those three appraisals.
Comment: Apparently, if the wife’s appraisal was bad, she would not get a chance to obtain another one; and if the price was more than the husband expected to pay or could afford, he would be required to complete the purchase anyway. The price paid would be based on the home’s value of more than six year ago (and would likely not be decided for many more months, if not longer), and the wife would receive her determined price. Would there be interest?
Donna E. Wardlaw, of Wardlaw Associates, PC, Saratoga Springs, represented the husband. Gerald A. Thompson Jr., of counsel to Carola, Bagnoli & Tollisen, PLLC, of Mechanicville , represented the wife.