Jan. 23, 2023
Rental Properties: How Are Handled in a Divorce?
Married couples often use the joint or marital property for investment purposes. In the event of a divorce, dividing some kinds of investments is quite simple. They can separate cash into individual bank accounts, while stock or bond portfolios can be either divided equitably or sold, with a further cash division. Rental properties are a popular form of investment for many married couples, but the division of rental real estate poses a special problem in divorce. A rental property purchased as marital property is not easily divisible and must be handled, especially in divorce proceedings.
Rental Properties and Divorce
In a divorce in North Carolina, rental properties will be exactly as any other properties will be analyzed to arrive at an equitable distribution. Equitable distribution in N.C. means that each party will retain their separate property, earned or owned by them individually before marriage. The court will divide any marital property fairly.
Rental Property: A Separate or Marital Property?
To categorize a rental property as separate or marital property, the court will look at the source of the money used to purchase the property and the time of its purchase. Suppose one party bought the property before marriage and subsequently handled the management and maintenance issues of the property. In that case, it will most likely be considered separate property and not subject to any division in a divorce decree.
Suppose the other spouse invested time, money, or effort in managing or maintaining a separate property. In that case, it might be considered joint or marital property and subject to division. Any rental properties bought with marital income or savings will also be considered marital property.
Fair Market Value of the Rental Property
Once an investment property is categorized as a separate or marital asset, the next step is to discover a fair market value. It can be stipulated if the parties can agree upon a value or already know an approximate value from recent tax assessments or loan documents.
If the property was purchased some time ago or has unusual or special characteristics, a licensed real estate appraiser might be more useful in determining the value. As a general rule, it is often preferable to rely upon a real estate appraiser, to prevent one side or the other from manipulating the value in hopes of gaining an advantage in an equitable distribution of property.
If there are several parcels of property, appraisals can determine the value of the entire real estate portfolio.
Options for the Rental Property
Once the valuation of the property is determined, the spouses have three basic choices:
- They can sell the property and divide the proceeds;
- They can own the property jointly as business partners;
- They can stipulate that one spouse will continue to own the real estate, and the other spouse will receive some other property in the distribution. This can be accomplished by arranging a buy-out or allocating assets.
Rental property income during divorce poses a special problem that must be considered. The divorce will take time to complete, and during that time, the rental real estate business must be carried on with tenants, contractors, and lenders, as though nothing has changed.
The best way to proceed is to deposit all rental income from the properties into a special account. All rental property expenses will be paid out of that account. Any profit can be distributed as part of the property division at the end of the divorce, and the decree can allocate responsibility for any shortfalls.
Handling Your Rental Property With a Divorce Attorney in Greensboro, NC
The division of rental property will require several documentaries and legal steps not required of other property. A divorce attorney in Greensboro, NC, can help draft a divorce decree.
A good lawyer can also assist with the preparation of any deeds and tax documents necessary for the disposition of the real estate after the entry of a decree. These are vital steps, and competent legal help can handle them efficiently and correctly.
Mercedes Chut has over twenty years of experience practicing law as a family law lawyer in Greensboro. She has also represented clients in other family law matters, bankruptcy proceedings, general civil litigation, and appellate work.
She provides her clients with personal attention and advice carefully crafted to represent the very best possible representation for all their complex needs. You can count on Mercedes Chut to listen carefully to your needs and work hard to resolve your legal problems.
If you live in or around Greensboro, North Carolina, and are considering a divorce or are already involved in one—contact the law office of MC Law, today for a consultation.