Selling Divorced Real Estate
“We’re Getting Divorced.”
Real Estate Council of BC
Issues to Consider When Representing Spouses in the Sale of the Matrimonial Home
No licensee wants to get caught up in a scenario like this:
Linda Licensee* at XYZ Realty Ltd was approached by two past clients, Tom and Trixie, to list their family home for sale. Tom and Trixie were getting a divorce, but they explained to Linda that their relationship was amicable and they were in agreement about selling the property. The listed price was a little on the high side, but they weren’t in a rush. Despite the circumstances, Linda was delighted to represent Tom and Trixie.
A few days after the listing agreement was signed, Linda called to make the first appointment to show the property. Tom answered and informed her that since Trixie had moved out with her new boyfriend, he no longer wanted to sell the property. He declined Linda’s request for a showing, demanded that she cancel the listing, and announced that he was leaving for Hawaii and wouldn’t be in communication at all for several weeks. He then instructed Linda not to tell Trixie anything about his desire to cancel the listing or his planned trip to Hawaii.
Somewhat taken aback, Linda called Trixie at work, described her conversation with Tom and asked Trixie what she should do. Trixie told her not to worry, she’ d calm Tom down. She told Linda to continue marketing the property and asked her to prepare a price reduction and email it to her at work to sign, because she’ d decided to get the property sold as soon as possible. Trixie directed Linda not to tell Tom of her instructions. She’ d fill him in when she met with Tom to calm him down.
Linda complied; the price reduction was signed by Trixie and broker-loaded to MLS®. The new price attracted a lot of interest, and the next day Linda called the “We’re Getting Divorced.” Issues to Consider When Representing Spouses in the Sale of the Matrimonial Home house again to make appointments to show the property. Tom answered the phone. He was outraged.
He told Linda he had filed a complaint with the Real Estate Council because she hadn’t acted in accordance with his instructions; she had failed to maintain the confidentiality of his information; she had reduced the price of the property without his authorization; and she had failed to act in his best interest, preferring the interests of Trixie over his. His lawyer was commencing proceedings against Linda for failing in her duties to him as a client.
After alerting her managing broker and advising the Real Estate Errors & Omissions Insurance Corporation of the potential legal proceedings, Linda sat down to reflect on what she could have done to avoid this unfortunate turn of events.
Challenges to Representing Divorcing Spouses
Even at the best of times, selling a home can be an emotional experience. And, as Linda discovered, when the matrimonial home is being sold during a divorce, these emotions can be greatly amplified. Whether or not a divorce is amicable, deciding the fate of the matrimonial home can be a major cause of distress for the spouses and a looming source of conflict.
Nearly every divorce presents the potential for heightened disagreement between spouses. For licensees “caught in the middle” of such conflicts, representing divorcing spouses can present a number of professional challenges. In order to safely and successfully navigate this complex legal and ethical terrain, and to avoid scenarios like Linda’s from happening to you, make sure you’re familiar with your duties and obligations as outlined in the Real Estate Services Act (RESA) and consider the following:
1. What are my fiduciary duties?
As a licensee, you have a duty of loyalty to your client, out of which arises other duties, such as:
- the duty of confidentiality;
- the duty not to act in a conflict of interest;
- the duty to obey all lawful instructions of the client; and
- the duty to make full disclosure of all material information you know of respecting the real estate services, the property, and any trade in real estate to which the services relate.
2. What are the different types of representation?
As a licensee, you may represent one or both spouses in the sale of their matrimonial home, and this representation can take one of three forms, all of which are permitted under RESA:
- the spouses agree to be represented by a single licensee;
- each spouse is represented separately under a co-listing agreement, in which two licensees from different brokerages work in tandem to sell the property; or
- a different licensee designated from within the same brokerage represents each spouse.
Fiduciary duties are inherent to each of these three licensee representations. Think carefully about the type of representation your clients have chosen, as it will significantly affect how you can act in discharging your fiduciary duties.
3. How does designated agency affect my fiduciary duties?
When the client is comprised of more than one individual, the designated agent owes fiduciary duties to all of those who make up the client. If the spouses do not wish you as the designated agent to disclose information or provide advice to the other spouse, then use a written service agreement to narrow the scope of your fiduciary duties.
When the designated agent is comprised of more than one licensee, all of those licensees owe fiduciary duties to the client. When two licensees co-list a matrimonial home owned jointly by spouses, each licensee owes fiduciary duties to both spouses. In these cases, the spouses may wish to modify the fiduciary duties of their designated agent through a written agreement, specifying that each licensee will owe fiduciary duties to one of the spouses but not both.
4. Who do I take instructions from?
Under the BC Family Law Act [SBC 2011] (“FLA”), any property owned by one or both spouses (now including common law spouses), will be considered to be family property, subject to equal division between the spouses. Even if one spouse is not on the title but lives in the matrimonial home, that spouse must be part of all decisions pertaining to the sale of the home.
If you are representing both spouses and they cannot agree on who will be giving instructions, or if they do not fully understand that only one spouse should be giving you instructions, there is a much higher potential for difficulties and misunderstanding throughout the representation.
Even if the spouses agree on who will be giving instructions, there is a potential for interference—unintentional or intentional— from the other spouse, particularly if differing viewpoints emerge between the spouses. To prevent potential conflicts or misunderstandings, ensure the written service agreement clearly addresses the issue of instructions.
5. What will the listing contract look like?
The listing contract must contain the seller’s authorization to list the property for sale. If there are more than one registered owners of the property, all of those individuals are the ‘sellers’ and must sign the listing contract. If spouses own the property jointly then they both must sign the listing contract as the ‘seller,’ regardless of their marital situation.
Typically, the listing contract authorizes the listing brokerage to appoint one or more licensees to act as the designated agent of the seller. Accordingly, where two licensees from the same brokerage are co-listing the matrimonial home, the listing contract will include them both as the designated agent of the seller. If the two licensees are from different brokerages, a co-listing agreement will be executed by the spouses as ‘seller’ and by both brokerages.
6. What other important issues should I consider?
Often, the type of representation that a licensee will provide is based on the relationship that exists between the spouses: if the relationship is amicable, spouses may choose shared representation, while couples experiencing a high degree of conflict may choose to be represented by separate licensees. However, the choice of one type of representation over another is no guarantee that that representation will remain uncomplicated.
Given the uncertainty that can surround the representation of divorcing spouses, a prudent licensee may also wish to clarify some of the following questions about the clients at the outset:
- What is the level of co-operation between the spouses? Is one spouse obstructive or do the spouses have divergent or conflicting interests? This may impact how the property is marketed or for how long, the availability for showings or open houses, or an agreement on an acceptable sale price.
- Do either or both of the spouses have legal representation they can consult with on an ongoing basis if necessary? Spouses may wish their lawyers to draft a non-disclosure agreement that reflects the expectations of the spouse and protects the licensee.
- Is there a separation agreement? If so, how does it deal with the sale of the matrimonial home?
- Are there any court orders dealing with conduct of sale or is court approval of the sale required?
- Do the spouses need to obtain financial advice?
Licensees and brokerages should also consider the following when different licensees are representing divorcing spouses:
- How will the separate licensees resolve potential differences of opinion? Disagreements between licensees may escalate a dispute between the divorcing spouses.
- Is the brokerage mindful of the risk of advertent or inadvertent disclosure of confidential information? What procedures or processes are in place to safeguard that information?
Licensees who, like Linda Licensee, are approached by divorcing or separating couples who wish to sell the matrimonial home should give careful consideration to these issues, and clarify any relevant points with their managing broker before accepting the listing. Licensees should ensure that, regardless of the type of representation, their clients understand and agree on key points such as who will give instructions and how any confidential information will be treated, and that this is clearly reflected in the written service agreement.
BC Family Law Act and Property Division
The Family Law Act [SBC 2011] (“FLA”) came into effect on March 18, 2013, and repealed the Family Relations Act [RSBC 1996]. The FLA introduced new and changed language that may affect how property is divided between spouses who are separating or divorcing.
For those parts of the FLA dealing with property and debt, spouses are defined as married spouses and people who have lived in a marriage-like relationship for at least two years. A spouse also includes former spouses. Unmarried spouses have the same property rights as married spouses.
Spouses trying to decide how to divide their property must determine if the property is family property (property that either or both spouses acquired while together, or an increase in value of an excluded property) or excluded property (property that belongs to one spouse, who owned, bought or received it). The FLA still assumes that spouses share family property equally.
Most often, the division of property is settled through a separation agreement between the spouses. If the spouses are unable to come to an agreement, the Court will determine the division of property.
Licensees with clients who are considering real estate transactions as a result of or during a separation or divorce, and who wish to clarify their rights and responsibilities under the FLA, should direct their clients to seek legal advice.