When negotiating a Michigan divorce, is it appropriate to deduct an unrealized real estate commission? In this case, the Michigan Court of Appeals decided that it is not appropriate to do so.
When a marital home is at issue in a Michigan divorce, a court has three choices. The court can either award the home to you, your spouse or order the sale of the home. When one party is awarded the home, it is common for that party to pay the other spouse a share of the equity. In calculating the equity, the party keeping the house will often argue to deduct an unrealized real estate commission to reduce the payment to the other spouse. After all, the home has to be sold sometime.
This issue of an unrealized real estate commission was recently addressed by the St. Clair County Circuit Court in the case of Ahles v. Ahles. In this case, the parties purchased a home in 1996 and divorced in 2017. At the time of the divorce, an appraisal valued the home at $135,000 and the parties owed $105,726 on the mortgage.
The wife was awarded the home and testified before the court that if she was forced to sell the home, she would incur a 7% real estate commission and wanted to reduce the value of the house by the commission. The trial court agreed with wife and reduced the equity even though there was no evidence provided to substantiate her position that any realtor would have taken a 7% commission on the sale or if she in fact planned on selling the home.
On Appeal, the Michigan Court of Appeals reversed the trial courts decision to reduce the equity in the home by the speculative real estate commission stating:
Thus, the trial court’s finding that the parties’ equity in the home should be reduced by a hypothetical 7% realtor commission was speculative, and therefore inadequate.Ahles v. Ahels – February 18, 2021 Michigan Court of Appeals.
In sum, it is not uncommon to argue a phantom (unrealized) real estate commission to lower the equity of a home when negotiating a Michigan divorce case. However, the Court of Appeals provides direction that it is inappropriate to do so unless the home is actually going to be sold.
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By: Daniel Findling