Divorce and Real Estate Purchase/Sale — Key Legal Issues | Attorney Rozil Amir

Divorce and Apartment Purchase/Sale — A Critical Intersection of Family and Real Estate Law

When a couple faces divorce, the question of buying or selling an apartment becomes one of the most complex and sensitive issues in the proceedings. An apartment is not merely a financial asset — it is often the emotional security of the family, the home of the children, and a significant financial investment. During this period, Israel's legal system requires careful examination of rights, obligations, taxation, and legal nuances that may substantially impact the financial situation of both parties following the divorce.

A boutique law office such as ours in Ramat Gan specializes in combining family law with real estate law, providing personal and strategic guidance to individuals facing this complex intersection. In this guide, we will outline the primary legal issues, various scenarios, risks, and ways to protect your rights.

Why Do Divorce and Apartment Purchase/Sale Create Legal Tension?

When a person or couple undergoing divorce wishes to buy or sell an apartment, several legal and financial questions arise simultaneously:

• Asset Division During Divorce Proceedings: Any property acquired or managed during marriage may be considered joint property, even if it is registered in the name of only one party. A sale or purchase during this period may affect asset division calculations.
• Right to Residence: A family court may decide who is entitled to remain in the apartment (right of residence) and the terms of its use, separately from legal ownership.
• Capital Gains Tax and Purchase Tax: Real estate transactions involve significant tax implications, and the timing of the transaction may affect the amount of taxes owed.
• Court Approval: In certain cases, the family court may require approval or comment on real estate transactions conducted during the divorce period.
• Mortgage Debt and Financial Liabilities: If the apartment is mortgaged or subject to other liabilities, the divorce parties may be jointly or separately responsible, depending on the legal conditions.

Primary Scenarios: Purchase and Sale During Divorce

Each situation is unique, but there are several recurring scenarios in our practice:

Scenario 1: Sale of the Shared Apartment as Part of Asset Division. A couple undergoing divorce decides to sell the shared apartment, and the sale proceeds are divided between the parties. This requires coordination between the family court and the land registration (Tabu) process, and typically involves an agreement on sale terms, cost sharing, and maintenance until closing.

Scenario 2: Purchase of a New Apartment During Divorce. One party wishes to purchase a new apartment for themselves or for child custody purposes. Here, it is necessary to examine whether the purchase affects asset division, how it is financed, and whether it requires court approval.

Scenario 3: One Party Wishes to Remain in the Apartment, the Other Wants Their Share. In this scenario, one party purchases the other's share (buyout), which requires a legal valuation, financing, and an agreement on payment terms.

Scenario 4: Apartment Under Estate or in Construction. If the apartment is still in the process of being purchased from a contractor or is under estate, matters become more complicated — it is necessary to examine the parties' rights under the contract, construction liability, and how this affects asset division.

Legal Rights in Real Property During Divorce

Under Israeli family law, there is an important distinction between legal ownership (the person registered in the Land Registry) and right of residence (the person entitled to occupy the apartment). Legal ownership can be in the name of one party only, but a court can grant a right of residence to the other party, particularly if there are children.

Legal Ownership and Marital Property

When an apartment is purchased during marriage, it is considered marital property even if it is registered in the name of one party only (unless there is a financial agreement that provides otherwise). This means that upon division of property in divorce, both parties are entitled to a share in the value of the property, even if only one of them is registered in the Land Registry.

If you sell an apartment that is marital property, you cannot do so with complete freedom — typically a family court requires approval or at least notice to the court of the transaction. If you do so without notice, the other party may file a claim to rescind the transaction or claim damages.

Right of Residence — Right to Use the Apartment

A right of residence is the right to use and occupy a property, regardless of legal ownership. A family court frequently grants a right of residence to a party who is not the legal owner, primarily to protect child custody and the child's emotional security. This right of residence can be permanent (until the children reach adulthood) or temporary.

It is important to understand that a right of residence is not ownership — it is a right of use. If the property owner wishes to sell the apartment, they cannot do so without considering the right of residence of the other party. This may delay the sale or reduce the market price of the apartment.

Financial Agreement — An Important Protection Tool

If there was a financial agreement between the parties (before marriage or during marriage), it may alter the rules of property division. A financial agreement can define that a specific property is personal property of one party, not marital property. If you are planning to purchase or sell during divorce proceedings, it is very important to check whether such an agreement exists and what it says about the property.

Capital Gains Tax, Acquisition Tax, and Tax Implications

One of the most confusing issues in real estate transactions during divorce proceedings is taxation. When selling an apartment, there is a liability for capital gains tax — a tax on the profit obtained from the sale of the property. The tax amount depends on the holding period, the rate of appreciation (the difference between purchase price and sale price), and the tax status of the seller.

Capital Gains Tax in the Context of Divorce

Typically, capital gains tax is paid by the seller (property owner). However, during divorce proceedings, this issue may become more complicated. If the apartment is jointly owned and the divorcing parties decide to sell it as part of asset division, both parties may be responsible for paying capital gains tax, or the tax may be deducted from the proceeds divided between them.

There are cases where it is possible to obtain a credit or exemption from capital gains tax — for example, if the apartment was a primary residence, or if the seller is elderly or has a disability. Careful legal and tax consultation can save substantial sums.

Acquisition Tax on New Purchase

If you are purchasing a new apartment during divorce proceedings, you are typically liable for acquisition tax. The tax rate depends on the property's value, your marital status, and the number of properties you own. During divorce proceedings, the tax rate may be higher if you are considered the owner of more than one property.

Discounts are available for certain situations — for example, purchasing an apartment for minors or for a person with a disability. It is important to consult with a tax advisor before signing a purchase agreement.

Strategic Tax Planning

During divorce proceedings, tax planning can significantly reduce transaction costs. For example, the timing of a sale or purchase, the arrangement of asset division, and the choice of who will be the legal owner of the property — all of these can affect the tax liability. A boutique law firm like ours works in collaboration with tax consultants to ensure that the legal strategy is also economically sound.

Scenario Comparison — Table of Legal and Financial Options

To understand the differences between the various scenarios, here is a table comparing the costs, risks, and advantages of each option:

Note: The figures in the table are typical only and depend on specific circumstances. Attorney fees, taxes, and other costs vary according to individual circumstances. When planning a transaction, it is important to consult with a law firm and a tax advisor.

How Does a Boutique Law Firm Help in This Process?

A boutique law firm like ours in Ramat Gan specializes in combining family law with real estate law. We provide personal and professional guidance to individuals facing the complex intersection of divorce and apartment purchase/sale. Our approach includes:

• Strategic Consultation: We help you understand your rights, risks, and various options. Each situation is unique, and we tailor our approach to your specific circumstances.
• Coordination Between Family and Real Estate Law: We are well-versed in both areas of law and can ensure that the legal transaction complies with the requirements of both fields.
• Collaboration with Other Professionals: We work with tax advisors, appraisers, real estate brokers, and other legal professionals to ensure that the legal strategy is also economically sound.
• Drafting Agreements and Documentation: We prepare agreements between parties, from court notices to comprehensive agreements on transaction terms.
• Representation in Legal Proceedings: If necessary, we represent you in family court and other legal proceedings.
• Discretion and Respect: We understand the sensitivity of this period and handle each case with complete discretion and respect for your privacy.

A divorce period is one of the most difficult times in life, and combining it with real estate transactions can add stress and complexity. We are here to make the process smooth, secure, and as comfortable as possible. Our initial consultation is always free, and we invite you to call or leave your details to start the conversation.