How Are Rental Properties Divided in a Divorce?

How Are Rental Properties Divided in a Divorce?
Jul 03, 2020
The Harr Law Firm

Cutting model of house in half on cutting boardDivision of assets during a divorce is rarely simple, but they can get especially complicated when you jointly own an income-generating asset, such as a business or rental property. Rental properties are unique when it comes to asset division, and you’re probably wondering if it will be divided like your personal residential property or if it will be split up more like a business. This blog will cover the basics of how rental properties are commonly divided in a divorce. If you have further questions or need an attorney on your side during your upcoming divorce, reach out to Harr Law to set up a consultation.

Selling the Property

There are many options available to you for evenly splitting your rental properties. The first—and often the simplest—option is to sell all rental properties and evenly split the profits. However, you will need to take into consideration the tax implications of selling a rental property, so it’s a good idea to consult with a CPA on this matter. If one or both of you want to keep your rental properties, then this is obviously not an option. Keep reading to learn what other avenues you can pursue.

Operating the Property Together

This is one option that involves treating the rental properties less like a property and more like a business. If you both wish to keep your rental properties and believe that you can work together as co-landlords after your divorce, you can choose to continue operating the properties together. It’s a good idea to set up a binding legal agreement regarding how you’ll manage the property and how the profits will be divided. Make sure you both have your divorce attorneys with you as you negotiate the details of your property management agreement.

Please note that you should only pursue this option if you genuinely believe that you can work well together as business partners even after your divorce is finalized. If your divorce proceedings are heated and your relationship did not end well, this is likely not a good option for you to pursue.

Offering Equivalent Assets

As with other aspects of property division, you also have the option of “trading” other marital assets in exchange for the rental property that you want to keep. For example, let’s say you have one rental property that you manage together. You want to retain this property and not co-manage it with your ex. So, you agree to let your ex keep your marital home if you can keep the rental property for yourself.

If you have multiple rental properties, you may agree to divide up those properties based on their value and the monthly income that they provide. For example, let’s assume you manage five rental properties together. You may agree to keep three of the lower-value properties in exchange for allowing your spouse to retain the remaining two, higher-valued properties.

If you’re going this route, it’s especially important to have your rental properties appraised. We can help you to get a professional appraisal on your properties to ensure that you’re getting a fair agreement based on the value of your assets. If you choose not to get the property appraised, you and your ex would have to agree on the approximate value of the property on your own, which we wouldn’t recommend.

Managing Your Property during Divorce Proceedings

Of course, dividing the property at the end of your divorce isn’t the only issue at hand with your rental properties. You’ll also need to determine how to manage those properties until the divorce is finalized. Who will make the mortgage payments on the property? Who will interact with the renters and ensure any repairs are handled? Will you split such expenses or will only one of you make the payments? And what will happen with rental property income while you’re going through your divorce?

One option we generally recommend is to set up an account exclusively for rental income and expenses. All rent checks would be deposited into the account. You would both agree not to spend any funds in the account except for rental property expenses, and you would be required to notify the other person before making a withdrawal from the account.

If you and your spouse have rental properties together, it’s essential that you have a reliable divorce lawyer to help you through the complications of dividing those properties equitably. Contact us today to set up a consultation.

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