How Are Rental Properties Divided in a Divorce?
Divorcing couples in California that own rental properties need to reach a mutual agreement over how to divide them. If the rentals are deemed community property, the value must be split equally 50/50 in a divorce.
They could be sold, and the proceeds split equally, or one spouse could buy out the value of the other spouse. They could continue to be operated jointly. Perhaps one spouse will assume ownership.
If a couple getting divorced can't reach a mutual agreement over the disposition of marital assets, they force a California family law court to decide.
When spouses seek a dissolution of marriage, one of the significant upcoming decisions is related to the equitable distribution of marital property, commonly called community property.
The first step is identifying assets as marital or separate property. Next is to assign a fair market value to the marital property, and then the couple must determine an equitable division between them.
When a divorcing couple is making decisions over the disposition of rental property, they need to determine whether it falls under the category of marital property, which means it was acquired during the marriage.
Suppose one spouse owned the rental property before marriage and the other spouse only had minor participation in the rental business. In that case, it could fall under separate property not subject to equitable distribution.
Conversely, suppose the other spouse played a significant role in the rental property, such as renting it, the maintenance work, or running the rental business.
In that case, they might have a legitimate claim that it has become marital property. Our California divorce and family law attorneys will review this topic in more detail below.
Community Property Laws in California
Regardless of whose name is on the property title, if you and your spouse acquired a rental property during your marriage, it will be considered community property, commonly known as marital property.
This means that in case of divorce, the value must be divided in half, regardless of whether it's equitable or fair. In a California family law court, you can pursue several legal options for dividing a rental property without litigation.
The community property law says clearly that if a divorce case goes to a judge, they will divide all marital property in half, a 50/50 split, but it does not always mean equitably.
The court will examine each divorce case and divide jointly owned assets and properties based on what they believe is a fair split for each spouse.
What About Separate Property and Commingling?
Under California laws, community and separate property are identified based on when the asset was acquired rather than which name is listed on the property deed. Further, if the rental property were given to one spouse as a family inheritance, it would be deemed separate.
In other words, if one spouse owned the rental property before marriage, it would be considered separate property and not subjected to division in divorce unless spouses commingled the asset after marriage.
Simply put, separate property will not be divided during a divorce case.
What Are the Legal Options for Dividing a Rental Property?
If your rental property is deemed marital or community property for divorce purposes, you and your spouse can work out a mutual agreement on how to divide it. This means a compromise will avoid court intervention. The various options to consider for divorcing couples who own a California rental property include the following:
- Sell the rental property and divide the profits;
- Keep the property and maintain it together;
- Exchange or buy out the rental property for an equivalent asset.
Suppose you have decided the best option is to sell the rental property and split the profits.
In that case, you will need to appraise your rental property to determine its current market value. This could also help you determine whether selling it is the best choice or pursuing one of the other options.
Suppose you decide to keep the property and operate it together jointly. In that case, you won't have to sell it but will have to determine whether you are comfortable maintaining a business partnership with your soon-to-be ex-spouse.
Suppose you have decided to trade or buy out the rental property for an equivalent asset. Then, if one spouse is seeking sole ownership of the rental property, they can negotiate and make an offer during divorce settlement negotiations.
For example, the spouse could make an offer trade for an equivalent asset, such as the marital home. There may be multiple rental properties. In that case, they could divide them based on equal value. Another option is for one spouse to buy out the rental property's interest from the other.
How Can a Family Law Lawyer Help You?
The best solution for you and your family will always depend on unique factors related to your divorce and property division.
Divorce is rarely easy, and each spouse will have their priorities and goals. The couple's income and earning capacity are typically different.
Suppose you own a rental property with your estranged spouse. In that case, you will need to consult an experienced family law attorney to review the case details and legal options moving forward.
You may be able to reach a mutual agreement and keep the court out of your business. Remember, if the rental property is considered community property, it's at risk of being divided in half in divorce.
Contact the Los Angeles family law attorneys at Furman & Zavatsky for a free case evaluation if you need more information about dividing rental properties in a California divorce case. You can contact us by phone or using the contact form.