The Case of the Fake Spouse: There's Danger in Divorce Apartment Sales
June 25, 2013 — Most divorcing couples who own a co-op or condo apartment generally handle the breakup with a certain amount of decorum, observing legal requirements and civility and, hopefully, moving on with their lives. Then there are the kind who forge signatures on documents and much, much worse. Condominium and co-op boards caught between dueling soon-to-be-ex spouses need to watch out for behavior you might not expect or even believe, and to take nothing for granted.
Ultimately, apartments usually get sold or transferred to one spouse as part of the divorce agreement. This is the point where boards have a role to play, particularly co-op boards, which must approve the transfer and vet the new buyer. Co-ops need to pay particularly close attention to transfers and make sure all parties are who they say they are.
"Lawyers all have stories about husbands and wives who have shown up at closings with fake spouses," says Arthur Weinstein, an attorney in private practice. "Great care has to be taken to make sure that the two people who hate each other are not doing some sort of conspiracy to transfer the apartment without the full consent of one of the divorced parties."
Ex Marks the Spot
Co-op boards need to understand the risk they face if shares are transferred erroneously: the wronged spouse could sue the board for half the value of the apartment. In a case two years ago, the ex-husband of a shareholder in a luxury Upper East Side co-op threatened to sue the board because his wife showed the apartment to potential buyers without his approval. He eventually withdrew his threat, according to Elliot Meisel, a partner in the law firm Brill & Meisel.
To protect itself from legal risks, a co-op board should have its lawyers, rather than a property manager, review the transfer documents. All parties involved should have legal counsel and be present at the closing – even if the various matrimonial attorneys need to be called in to keep the spouses apart.
Condo boards, however, are spared this complication, as a condominium sale is more like the sale of a private home, where a title insurance company, not the board, vets the transfer of title.
Last One Standing
In many cases, one spouse will keep the apartment. Co-ops often want to review the remaining spouse as they would a new shareholder, making sure he or she has the financial ability to afford the apartment. However, if the transfer happens before the divorce is final, then the board often can't vet the spouse; most proprietary leases waive the consent requirement for a transfer of property between spouses. However, if the couple has already finalized their divorce, the board could argue that the couple is no longer married and ask to review the remaining spouse. That was the case in an Upper West Side co-op where the husband agreed the give the apartment to his wife in the divorce. The board wanted the wife to submit a new application.
"I might want to vet somebody whose financial ability has changed since the matrimonial dispute began," says Bruce Cholst, a partner at Rosen, Livingston & Cholst. "I think it's a valid position to take. It's making a very legitimate point: as a joint unit, husband and wife were financially responsible. Now, if there's a separation and a party is going to have to stand on his own in terms of supporting the apartment, it may be that they're less financially responsible, so I would urge a board to stand firm and review the remaining shareholder's financial ability."
"The co-op's ability to [do] this would depend on the language of the proprietary lease," says attorney Robert Schlosser, a Manhattan solo practitioner.
Rearing Its Ugly Head
Divorces are messy and sometimes the ends don't get neatly tied together. If a separating couple doesn't make final all the terms of their divorce, perhaps in an attempt to save money or because they never reach any sort of agreement, the apartment they once shared might still be considered a shared asset. And, depending on the type of ownership agreement they have, particularly with co-ops, an absent spouse might have rights to the apartment years later. Or, if the spouse dies, her estate might still have a right to it.
In the end, boards should always have an attorney review a case involving divorce, even if it happened years earlier. Concludes attorney Weinstein: "That ex-spouse rears his ugly head and shows that the board missed something, and then you're really left out in the cold."
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