Selling an Apartment in Divorce — A Comprehensive Legal Guide

Selling an Apartment in Divorce — A Complete Legal Guide

Selling an apartment during divorce proceedings is one of the most complex issues in family law and property law in Israel. The apartment, typically, constitutes the largest and most important asset in the joint property portfolio, and therefore its division or sale requires a deep understanding of rights, obligations, legal procedures, and proper legal tactics.

In this guide, we will review all legal aspects of apartment division in divorce, including rights in joint property, the sale process, division of sale proceeds, capital gains tax, purchase tax (in case of prior purchase), and more. At Mandelboim, Gor, Witzman-Gor & Co. Law Offices, we specialize in family law and property law since 2008, and we are here to help you understand your rights and guide you through this process.

What is the Legal Status of a Jointly-Owned Apartment in Divorce?

When a married couple purchases an apartment during marriage, the apartment is generally considered joint property, unless otherwise agreed in writing (for example, in a prenuptial agreement or early property agreement). This means that both spouses are joint owners of the apartment, and each has a legal right to half of its value (or another agreed-upon proportion).

Under Israeli family law, when divorce proceedings begin, the jointly-owned apartment is considered property to be divided between the spouses. This division can be carried out in two main ways: (1) selling the apartment and dividing the proceeds between the spouses; (2) retaining the apartment by one spouse, while the other receives monetary compensation or other assets in exchange.

Rights in Joint Real Estate During Divorce Proceedings

Each spouse has equal rights in the jointly-owned apartment, unless otherwise agreed. These rights include:

• Right of Ownership: Each spouse is a joint owner of the apartment and its value.
• Right to Sell: Each spouse can demand the sale of the apartment to dissolve the joint ownership of the property.
• Right to Use: Each spouse is entitled to remain in the apartment as long as they are a joint owner, unless removed from the apartment by court order.
• Right to Compensation: Upon division of property, the spouse who does not receive the apartment is entitled to demand monetary compensation equal to the value of half the apartment (or the agreed-upon proportion).

It is important to note that these rights may change depending on agreements made between the spouses, such as an early property agreement or prenuptial agreement. Additionally, issues such as eviction from the apartment, prevention of access to the apartment, or damage to the property may affect property division.

Process of Selling an Apartment in Divorce — Main Steps

When spouses decide to sell the apartment, the process includes several legal and practical steps:

1. Agreement to Sell: Both spouses must agree that the apartment will be sold. If one objects, the court can be petitioned for a forced sale order.
2. Apartment Valuation: Before the sale, it is advisable to have the apartment valued by a professional appraiser. This valuation serves as the basis for determining the sale price and dividing the proceeds.
3. Marketing the Apartment: The apartment is placed on the market through a real estate agent or directly. It is important to coordinate between the spouses regarding the price and terms of sale.
4. Signing a Sales Contract: When a buyer is interested in the apartment, a sales contract is signed (usually through a lawyer).
5. Closing the Deal: Upon completion of the sale, the proceeds are divided between the spouses, after payment of taxes, fees, and other obligations.

Division of Sale Proceeds in Divorce

After the sale of the apartment, the proceeds must be divided between the spouses. The basic division is 50-50, unless otherwise agreed or determined by court.

However, there are several costs and liabilities that must be deducted from the proceeds:

• Capital Gains Tax: A tax levied on profit from property (the difference between the purchase price and the sale price). The tax varies depending on the seller's tax status and ownership period.
• Real Estate Agent Commission: Usually 2-3% of the apartment's value.
• Legal and Bureaucratic Costs: Costs of lawyer fees, registration with the Land Registry, and more.
• Liabilities on the Apartment: If there are liabilities on the apartment (for example, an unpaid mortgage or tax debts), these must be deducted from the proceeds.
• Temporary Housing or Other Costs: Sometimes, spouses need to find alternative housing during the sale, and part of these costs may be shared.

Capital Gains Tax and Tax Reporting in Divorce

Capital gains tax is one of the most important issues in property division in divorce. This tax is levied on the profit created from an increase in the property's value from the time of purchase to the time of sale.

Calculation of capital gains tax includes several factors:

• Purchase Price: The price at which the apartment was purchased (including purchase costs such as purchase tax).
• Sale Price: The price at which the apartment was sold.
• Ownership Period: How long they were owners of the apartment. This affects the tax rate.
• Tax Status of the Seller: Whether this is their only apartment, or if they own additional properties.

Generally, capital gains tax ranges from 10% to 30% of the profit, depending on the circumstances. It is important to consult with a lawyer or tax advisor before the sale to understand the tax implications.

Deep Legal Issues in Apartment Division in Divorce

Forced Sale of a Jointly Owned Apartment

In cases where one spouse objects to the sale of the apartment, the other spouse may petition the court for a forced sale. The court will examine the circumstances and determine whether a forced sale is the appropriate solution.

When examining a request for forced sale, the court considers factors such as: the economic need of the spouses, the ability of one of them to remain in the apartment, the interests of children (if any), and the impact on each spouse. Generally, a court will order a forced sale when one spouse cannot buy out the other's share from the property, or when the sale is the fairest solution.

The forced sale process often takes several months, and legal expenses can be substantial. Therefore, it is important to try to reach an agreement between the spouses before petitioning the court.

Retention of the Apartment by One Spouse

In certain cases, spouses decide that one of them will remain in the apartment, while the other receives monetary compensation. This often occurs when there are children, and the spouse caring for them wishes to remain in the home where they grew up.

When determining compensation for the spouse who will not receive the apartment, the following should be considered:

• Apartment Value: Half the value of the apartment (or the agreed-upon proportion).
• Liabilities on the Apartment: If there is a mortgage or other liabilities, these should be deducted from the value.
• Children's Rights: If children live in the apartment, their interest in preserving the home should be considered.
• Financial Capacity: Whether the spouse remaining in the apartment can finance the mortgage and household expenses independently.

Generally, compensation is paid through the other spouse's assets (such as savings, pension funds, or other assets), or through installment payments over time.

Mortgage in Divorce — Rights and Obligations

If a mortgage exists on the apartment, this complicates the property division process. Typically, the mortgage is in the names of both spouses (or only one of them), and both are responsible for paying the debt to the bank.

In the divorce process, it must be determined who will bear the mortgage debt:

• If the apartment is sold: The mortgage is paid from the sale proceeds, and the balance is divided between the spouses.
• If one spouse remains in the apartment: That spouse typically bears the mortgage debt, and the other receives monetary compensation.
• If both spouses are obligated on the debt: The bank must be consulted to determine whether one spouse can be released from the debt, or if both remain liable.

It is important to coordinate with the bank regarding the new arrangements after the divorce to ensure the debt is properly divided and no issues arise in the future.

Apartment Purchased Before Marriage or Inherited

If the apartment was purchased by one spouse before marriage, or if it was inherited, the situation changes significantly. Generally, property purchased before marriage is considered the personal property of the owner, not jointly owned property.

However, if the other spouse contributed to investments in the apartment (such as repairs, improvements, or mortgage payments), that spouse may be entitled to compensation for the contribution. This requires clear evidence of the contribution and a legal assessment of the rights.

Apartment Issues — Damages, Maintenance, and Liabilities

During the divorce process, if the apartment suffers from damages or maintenance issues, it must be determined who is responsible for repairs and payment. Generally, co-owners are equally responsible for maintaining the property, unless otherwise agreed.

If one spouse refuses to share repair costs, the other may petition the court for a claim to divide the costs. Additionally, if one spouse caused damage to the apartment, that spouse may be liable for repairs.

Child Support and Housing Rights

When determining who will remain in the apartment, the court considers the children's rights. Generally, joint custody or primary custody of one spouse determines who should remain in the apartment to provide stability for the children.

When determining child support, the court may order the apartment to be retained by the spouse caring for the children to ensure they have a stable home. This may affect the overall distribution of assets.

Comparative Table — Different Scenarios in Apartment Division During Divorce

Typical Costs in Apartment Division During Divorce

When dividing an apartment in a divorce, you should be aware of the following typical costs:

• Real Estate Agent Commission: Usually 2-3% of apartment value (paid by the seller).
• Capital Gains Tax: Ranges from 10-30% of profit, depending on ownership period and tax status.
• Legal Costs: Attorney fees to complete the sale, typically 1,000-3,000 NIS.
• Land Registry Filing Fees: Registration fees at the Land Registry office, typically several hundred shekels.
• Apartment Insurance: Apartment insurance must be valid until the closing date of the sale.
• Court Litigation Expenses: If there is litigation, these costs can be substantial (5,000-15,000 NIS and more).

Legal Documentation and Required Documents

When performing apartment division in a divorce, several legal documents must be collected and prepared:

• Updated Land Registry Deed: To confirm ownership rights of both spouses.
• Property Appraisal: Professional valuation of the apartment to determine fair division.
• Purchase Agreement: Sales contract between the sellers (both spouses) and the buyer.
• Asset Division Agreement: Legal agreement between spouses regarding division of proceeds.
• Court Judgment or Court Order: If there is litigation, a court order mandating a specific division.
• Bank Confirmation: If there is a mortgage, confirmation from the bank that the mortgage will be paid from the sale proceeds.
• Capital Gains Tax Report: Report to the Income Tax Authority when reporting the property sale.