By: Woodnick Law, PLLC
[The article below was originally published on December 2nd, 2016 and updated on May 19th, 2021. In May of 2021, real estate analyst John Wake found that some homes in Maricopa County were selling 43-59% above market value . This means that realtors in Arizona earned higher commissions off these sales. For example, a home originally valued at $600,000 now sells for over $800,000, and the realtor’s commission would be $6,000 more than if the home was sold for its market value . This increased revenue, however, may not be sustainable, and impacts child support and spousal maintenance.]
Steady economic recovery in Arizona has resulted in job growth, a demand for housing, the rise of home prices and, in turn, an increase in the number of people obtaining their real estate licenses. According to the Arizona Department of Real Estate, there are now over 44,000 licensed realtors in Arizona. That means if you’re not a realtor, you’re in luck because both of your neighbors are. Okay, perhaps that is a bit of an exaggeration, but not by much. Although we’re not yet seeing the number of licensed realtors that we saw during the height of the market approximately a decade ago, the numbers are steadily increasing as economic recovery continues. Therefore, with a fairly minimal amount of barriers to licensure, everyone from your friendly 18–year-old barista to your trusted family law attorney (hint, hint) are obtaining their licenses in the hopes of cashing in on the upswing in the market. That being said, there are several considerations to take into account in the event you are planning to divorce a realtor.
Your Spousal Maintenance
If a court will be establishing both child support and spousal maintenance, the court will first determine the appropriate amount of spousal maintenance to be awarded. Although there are limited guidelines for the court to follow when determining the appropriate amount of spousal maintenance to be awarded, the annual gross income of your ex will undoubtedly be at issue. That being said, it is important to be aware that the unpredictable nature of a realtor’s compensation will make it much more difficult to pin down the amount of your ex’s annual gross income than it might otherwise be to determine the annual gross income of someone with a more traditional 9–to–5 job with a consistent salary and benefits. Therefore, if the market is struggling during your dissolution, you will most likely want to insist that any award of spousal maintenance have the ability to be modified in the future. On the flip side, if you’re getting a divorce at the height of the market, you may want to try to negotiate an award of spousal maintenance that can’t be modified. In the alternative, you may want to consider negotiating a lump sum settlement for spousal maintenance in order to avoid future fluctuations in the market altogether. Although a court will only order a monthly maintenance payment, your pretrial negotiations can be much more creative and flexible.
In addition, it will undoubtedly be more difficult to determine the amount of your ex’s annual gross income since realtors are able to deduct a significant amount of everyday living expenses as business expenses, such as vehicle expenses (lease payments, auto insurance, gas, oil, repairs, depreciation, etc.), meal expenses, cell phone expenses, and a home office deduction (just to name a few). Taking the above-mentioned into consideration, and depending on the overall success of the realtor in your life, it may be worth looking into retaining a tax consultant in an attempt to decipher the amount of so-called business expenses that could arguably qualify as everyday living expenses for purposes of determining an appropriate amount of spousal support to be awarded.
Your Child Support
Your ex’s annual gross income is also critical to determine an appropriate amount of child support to be awarded. Luckily, you should have been able to pin this number down somewhat when determining the amount of spousal maintenance to be awarded. Regardless, since you may request that the court modify your child support order upon a showing of substantial and continuing change of circumstances, it may be necessary to request modification of the child support order much more often when it comes to dealing with a realtor since a realtor’s income can fluctuate wildly from month to month and year to year depending on the strength of the real estate market. That being said, the Arizona Child Support Guidelines require that courts order parties to exchange financial information such as tax returns, financial affidavits, and earning statements every twenty-four months. Practically speaking, parties tend to make their financial information readily available if there is a good argument to be made that their child support order should decrease, but may conveniently forget about their continuing duty to disclose their financial information if their child support order should increase. So, if it’s been more than twenty-four months, the real estate market seems to be booming and your kids report that your ex is driving a new Mercedes, it may be time to remind your ex that it’s time to exchange financial information pursuant to court order. Depending on the success of the realtor, it could be well worth the time, expense, and potential inconvenience to make sure that your child support order still comports with the Arizona Child Support Guidelines.
Just as the unpredictable nature of a realtor’s compensation will make it more difficult to determine the amount of your ex’s annual gross income, similarly, the unpredictable nature of a realtor’s work schedule may make it more difficult to agree upon a reliable and consistent parenting time schedule. Depending on the success of your ex, it may be difficult for them to exercise parenting time on nights or weekends given the fact that this is the time when most home buyers are available to view homes. On the other hand, if your ex is struggling to make a career out of real estate, they may have more time on their hands to exercise parenting time, in which case you may be lucky enough to avoid some child care costs. Regardless of your situation, keep track of the parenting time actually being exercised because child support can be adjusted based on the schedule.
If your ex left a steady job at the State with great benefits in order to pursue a career in real estate, after divorcing, you may now find yourself in a position in which you are forced to purchase insurance on the private market for you and the kids which, as it turns out, is anything but affordable. Fortunately, your child support order will take this extra expenditure into account, effectively ordering your ex to pay a portion of the cost to insure your mutual children. Again, child support will be adjusted upwards or downwards depending on the amount it costs to insure your mutual children and depending on whether you or your ex have agreed to provide the children with insurance. In the event you have no children in common, the fact you are being forced to incur the extra expense of purchasing insurance on the private market may be an arguable justification for an increased award of spousal maintenance.
Dividing your Assets
Another potential point of contention when divorcing a realtor is whether commissions should be considered community or separate property depending on the timing that commissions are paid. Should any and all commissions paid out after service be considered separate property even though close of escrow occurred prior to service? Or, is close of escrow a more appropriate date to use when determining the classification of a commission as community or separate property? What if a majority of the work on a deal was performed while still married, but close of escrow and payment of commission both occurred after service? In addition to the above-mentioned, you will want to consider whether your ex waived his commission for friends and family throughout the course of the marriage. If so, you may have a claim to half of the amount of commissions that were waived.
Real Estate Brokers
Please note that all of the above-mentioned considerations will most likely be made much more complicated in the event you are in the process of divorcing a real estate broker since a real estate broker is not only entitled to commissions for any properties he or she assists in selling or buying, but is also entitled to a percentage of the commissions earned by all realtors operating under their broker’s license. As such, determining annual gross income and whether commissions should be classified as community or separate property will be made exponentially more complicated depending on the amount of agents working for your ex. In that case, it may be worth considering retaining a business valuation expert who specializes in real estate brokerages.
Although going through a divorce is never an enjoyable process, taking the time to thoroughly consider the above-mentioned pitfalls of divorcing a realtor could help to ensure that an equitable dissolution is ultimately reached.