One of the beauties of selling a house in a dissolution matter is that the proceeds can be used to pay off debts. 

It can seem convenient to supply an accounting of debts and have escrow cut disbursement checks directly to those owed — but that can backfire, if even allowed. As Realtors, we see requests for disbursement of proceeds at closing for all sorts of things, such as to pay off delinquent support, credit card balances, attorneys’ fees, car loans, — even court-appointed psychologist fees and private school tuition. 

The first issue with handling these kinds of bookkeeping matters at the closing table: Verbiage in court orders can be problematic. Here are a few examples:  

• Petitioner shall reimburse Respondent for 50% of the cost of the minor child’s summer camp fees.
• Respondent shall reimburse Petitioner for their contribution of the mortgage payment from May 2022.
• Petitioner received an insurance claim in the amount of $17,000 from a flood on the property. Respondent shall receive reimbursement of their share of restoration repairs made, plus 50% of the balance of the insurance payout after receipts are provided.

In each of these scenarios, the order indicates how reimbursements are to be calculated, but falls short of providing the exact figures for debits and allocation between the parties. Escrow needs instructions that are pure as the driven snow. Consider these revisions to the court order language above:

• Proceeds are to be divided 50/50.
• Deducted from Joe Smith’s 50% portion, Jane Smith shall receive:
• $1,192.65 for reimbursement of the cost of the minor child’s summer camp fees
• $2,678.23 for reimbursement of post-flood restoration repairs
• $5,821.77 for 50% of insurance claim
• Deducted from Jane Smith’s 50% portion, Joe Smith shall receive:
• $43,960.64 as reimbursement for mortgage payments since May 2022

The second issue is that expenses to be paid at closing should be limited to those incident to the sale itself. Things like paying contractors who performed work on the property for negotiated repairs or delinquent HOA dues are usually okay. Things like paying off a car or credit card are not okay. Escrow often does not want to take on the responsibility or liability of these third-party payments and it’s often against their policy. 

The third issue: Many escrow companies cannot hold funds past closing. If they do, it’s usually for an extraordinary reason and can only be held for a few days. These companies are heavily regulated with compliance guidelines that prohibit the holding of funds in many cases. 

In light of these issues, here are some best practices I can offer:

• Provide black-and-white figures (to the penny) for proceeds disbursement.
• Keep the language for the disbursement clear and concise so the title company can follow the order accordingly. 
• Keep disbursement limited to the parties or invoices directly related to the sale itself. 
• Indicate where proceeds are to be sent upon closing.

If you have any questions about any of the issues above, or any questions at all related to the sale of the home in your cases, please feel free to reach out to me. I’m here to help.

Until next time,

Megan Oh