As another source of income, you and/or your spouse may have a rental or investment property. If you are getting divorced, you are likely wondering what will happen to such properties as part of your divorce involves dividing your assets and debts. Whether an investment property is subject to division depends on its classification as separate or marital/community property.
Separate property is any asset or debt that either party acquired before their marriage or after their official date of separation. Separate property is not subject to division and whoever acquired it will typically retain ownership in the event of a divorce.
Community property refers to anything you and your spouse own or owe together. The property would either have been acquired during your marriage or may be separate property that was commingled. A commingled asset is separate property or funds that are mixed in with marital funds or assets.
For instance, let’s say you bought a rental property before your marriage and set up the property as an Airbnb. If marital funds are used for the property’s maintenance or your spouse helps with managing the property, the asset is commingled. Commingled assets often lead to separate property disputes, in which either party questions how the other party has classified an asset and seeks the court’s intervention.
What to Do with Rental Property Income During a Divorce
Until a property division settlement is reached, you and the other party may consider leaving the property’s earnings untouched. You can open a property management account (if you have not already) and that account can house the earnings and be used solely to cover bills (i.e. maintenance, property taxes, rent/mortgage, insurance fees, etc.).
How Do I Protect My Investment Property in a Divorce?
If your investment property is a marital or commingled asset, your property may be:
- Sold. A division option to sell the property and split the profit, which can have tax implications as well as an impact on your long-term financial future (because of the lost income).
- Traded. If you want to keep the property, the other party can be given a marital asset that is the same value as the investment property.
- Jointly owned. You and your soon-to-be-ex-spouse may draft an agreement that allows you both to remain the property owners and managers, and you may divide the responsibilities, expenses, and property income after the divorce.
In addition to offering your spouse property of equal value, you can protect your investment property from division by:
- Mediating the terms. With divorce mediation, you and your spouse have more control over the terms of your divorce and property division settlement. Rather than leave the decision to the court (concerning who will retain ownership or whether the property will be sold), you can come to an agreement yourselves.
- Drafting a marital agreement. If you have a legally valid prenuptial or postnuptial agreement, you will have previously worked out how property will be divided, including investment property. Drafting such an agreement before your divorce, if possible, is a great way to protect your assets.
- Buying out the other party. If your spouse is willing, you can offer to buy their shares or ownership stake in the property.
Investment Property Valuation
Regardless of whether the investment property is a separate or community asset, you should have the property professionally evaluated. Having an accurate value of the property can help ensure the property division settlement is fair. You can work with a forensic accountant or real estate professional to properly price your rental property.
Consult with Our Firm
If you need help with the property division process, the attorneys at The Neshanian Law Firm, Inc are equipped to help you understand the laws governing your case and protect your interests. With decades of collective experience, we are known for being honest, compassionate, and knowledgeable, and we are dedicated to offering our clients high-quality, comprehensive legal services.
We handle a wide variety of property division matters, including:
- Hidden asset claims
- Tracing concealed assets
- Separate property disputes
- Business valuations
- Date of separation issues
- Division of income from investments
- Pension and retirement account matters
- Valuation and division of collectibles or heirlooms
To learn more about how we can help you, schedule a case consultation today by completing our online contact form or calling (949) 577-7935. We look forward to hearing from you.