Opinion ID: 2794495
Heading Depth: 2
Heading Rank: 1

Heading: The Hypothetical Real-Estate Commission

Text: ¶ 18. In distributing the parties’ property, the trial court awarded the marital home to mother subject to her decision within three months to refinance the mortgage or to list the property for sale with a real-estate broker of her choice. Concluding that father had contributed $65,000 to the initial equity in the marital residence—“approximately 30%” of the initial equity—the trial court determined that father was entitled to a payment of $65,000 plus “30% of any equity in excess of $220,000.” The trial court explained that if mother elects to sell the property, the increased equity would be determined by the amount of the net sale proceeds in excess of $220,000; if the net equity from the sale is less than $220,000, father’s share would be 30% of those net proceeds. ¶ 19. The trial court ordered the refinancing as an alternative to selling the home. If mother decides to refinance, the trial court initially calculated the increase in equity to be $7,815 by deducting a 6% real-estate commission from the home’s stipulated value. See supra , ¶ 15. In its order, the trial court determined that if mother decides to refinance, she could calculate the amount of equity she would pay to father by deducting “6% of the agreed upon fair market value”—the real estate commission—and the costs of refinancing. The trial court made no finding that mother was reasonably likely to sell the property within a reasonable time following the refinance. Because there would be no sale in the refinance scenario, it is illogical to include a sales commission in calculating the amount of equity owed to father in that scenario. ¶ 20. Our rejection of a hypothetical real-estate commission in the scenario described above does not mean that we reject hypothetical commissions outright. In Hayden v. Hayden , we accepted the trial court’s consideration of a 6% hypothetical real-estate commission to account for a $4,000 overall difference between the divorcing parties’ property awards—one spouse received $82,000 worth of property that included the marital home, while the other received $78,000. 2003 VT 97, ¶ 16, 176 Vt. 52, 838 A.2d 59. In Hayden , “the trial court observed that the deduction of a six percent real estate commission for the future sale of the marital home rendered these awards essentially equal.” Id . (quotation marks omitted). In this case, the trial court’s order means that father is entitled to $2,344.50—30% of the $7,815 increase in equity after the hypothetical real-estate commission is applied. That amount further decreases after subtracting the costs of refinancing. Mother would keep the remaining amount of the increase in equity, over $35,000. Dividing the marital home’s equity in this manner does not result in equal overall property awards. ¶ 21. We also reject the hypothetical real-estate commission in this scenario because it has the effect of revaluing a specific asset, the equity in the marital home. We permitted the trial court in Hayden to consider a hypothetical real-estate commission because it “considered the implications of a hypothetical real estate commission on the overall difference between the property awards but did not deduct the real estate commission from its valuation of the marital home .” Id . (emphasis added). We reaffirmed the rule that “[p]otential costs such as taxes or commissions cannot affect the valuation of a marital asset.” Id .; see also Johnson v. Johnson , 158 Vt. 160, 164-65, 605 A.2d 857, 860 (1992) (rejecting “vague and theoretical transactional tax consequences as routine factors in determining fair market value” of assets). The situation here is analogous to the consideration of tax consequences that we rejected in Drumheller v. Drumheller , 2009 VT 23, ¶¶ 53-56, 185 Vt. 417, 972 A.2d 176. In Drumheller , the trial court awarded most of the marital property to the husband, but also required him to pay half of its value in cash to the wife. Id . ¶ 53. The husband argued that because he would have to sell much of the property to comply with the trial court’s order, the trial court should have calculated the tax consequences of the sales and adjusted the amount of cash that it awarded to the wife accordingly. Id . The trial court determined that in the absence of evidence that any of the property was for sale or likely to be sold, it had no basis for adjusting the amount of the wife’s monetary award by factoring in the taxes that potential sales would incur. Id . We agreed with the trial court, concluding that “the relief [that the husband] requested was indistinguishable from revaluing the assets. . . . It would be inappropriate to consider the tax liability on a sale of assets if no asset is to be sold .” Id . ¶ 56 (emphasis added). ¶ 22. For the same reason that we rejected consideration of potential taxation that was “purely speculative” in Drumheller , we conclude that a hypothetical real-estate commission may not be used in this case to reduce the value of father’s payout from the increase in the home’s equity. Id . ¶ 54. Although it may be “particularly appropriate” to consider potential transactional costs “where one spouse retains the marital property and pays off the other spouse's share in cash,” the trial court’s discretion to do so does not exist where there will be no transaction. Id . ¶ 55. Thus, it was beyond the discretion of the trial court to consider a sales commission in the refinancing scenario. Because there would be no sale in the refinancing scenario, the trial court’s inclusion of the hypothetical real-estate commission had the effect of directly modifying the value of the asset being awarded. As a result, the computation unbalanced an otherwise equal overall property division. We therefore reverse the application of the hypothetical real-estate commission to the refinancing scenario.