The search for ‘blog fodder’ – content to fill the pages of this blog – is relentless.
This week, while waiting for the Muse to slap me in the face with a brilliant blog topic, I had a thought: why not simply re-purpose some of the daily chatter that fills our lunchroom, where our lawyers’ pet peeves are candidly aired while swilling coffee and munching on co-workers snacks.
So, what sorts of things really bug us as lawyers- makes us grind our teeth or pull out our hair? Well, in hopes of educating our clients, and hopefully even saving them a few dollars on legal bills, welcome to our new series.
This week’s rant is dedicated to matrimonial clients who prematurely rush into signing binding real estate contracts for their post separation homes, before they’ve firmly nailed down their monetary entitlement from their disintegrating relationship.
A common scenario sees the unhappy couple owning property together, often with considerable equity. Either one of them has to buy the other out, or the property goes up for sale. As everyone knows, the starting point for the division of family assets is 50/50 -right down the middle, so a departing spouse can legitimately expect a windfall which could serve as a down payment for a new place.
Financial expectations have a habit of distorting reality. Then too, no one enjoys the task of actually arm wrestling their ex into a final financial settlement. A lot of wounds have to be reopened and scabs picked off. It is stressful and depressing. It is far more empowering to focus instead on upon the new life to be built as a single person.
In the result, while negotiations towards the separation agreement lag, the client begins window-shopping for new digs. The process can be as intoxicating as a drug. The new residence will be the reward for surviving all the heartbreak of the breakup, and the symbol of a new beginning. Add the charms of a realtor hungry for commission to the mix, and the seduction is complete. The deed is done-the contract signed. All the client needs now is their half of the equity in the former matrimonial home
Reality only rears its ugly head when the client’s mortgage broker, almost as an afterthought says “oh, bye the way, the mortgage company will need a copy of your signed separation agreement” That’s right- that small agreement that carves up everything that you and your ex own, that still has to be negotiated with the one person who really isn’t wishing you all the best in your new home.
From a lawyers respective, the carving up of a couple’s financial assets is an exercise in horse-trading the overall division of a bundle of assets, not just the equity in the home. There are pensions, investments, RRSPs, businesses, vehicles, and household contents, not to mention entitlements to child or spousal support, and a carving up of the family debt as well. your ex may even be entitled to a recognition of property brought into the relationship at its outset.
While the client may well walk away with 50% of that total bundle of assets and liabilities, it is by no means a sure thing that they will receive half the sale proceeds of their former home. The legal system does not divide assets on a piecemeal basis, so if you expect to retain your business, car or perhaps your pension, the value of your spouses share those assets has to come from somewhere else -such as your share in the equity of the home.
So now our client is in a precarious situation. They have put a significant amount of money at risk as a deposit on their new purchase, and are now under a hard time constraint, so they have to bargain with their back to the wall. If they fail, they lose both their deposit and their dream home. Bargaining in desperation is seldom conducive to achieving an optimal result or even, indeed, a moderately fair one.
not only is the client behind the eight ball but we as legal counsel are now under no-win situation as well. Bargaining hard for an adequate deal for the client may require us to advise them them to flush away their deposit; while on the other hand we compromise our own ethical responsibilities if we allow the client to proceed with a bad overall deal for the sake of expediency. (and now the realtor and mortgage broker hate us too!)
Why lawyers go gray !
You heard it first, straight from the lunchroom.