What Happens To the Rental Property During a Divorce?

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What Happens To the Rental Property During a Divorce?

When couples divorce, decisions have to be made about dividing the marital property. Marital property includes more than just the family home, financial accounts, and personal property. Marital property also includes any businesses either or both spouses have including real property that is used for a business. There are numerous legal and practical factors that determine how to divide or manage rental property during a divorce.

Divorce and real estate divisions are controlled by New Jersey’s equitable distribution laws. A rental property business is considered marital property if either spouse acquired the property after the marriage or if one or both spouses started the business after the marriage started. Our seasoned family lawyers can explain when real estate acquired before the marriage might be considered marital property. Managing the details around who may keep a rental property during a divorce can be very tricky, which is why its important you speak to a qualified family law lawyer.

How a rental property gets divided in divorce

There are several different ways to handle rental property during a divorce. The key considerations are the value of the property, how much income the rental property produces, and what tasks and expenses are involved in managing the rental property. A key immediate consideration when discussing rental property during a divorce is whether a tenant has an existing lease and the length and terms of the lease agreement.

In many divorce and rental property cases, our family lawyers are able to negotiate agreements with your spouse directly, through mediation, or through the collaborative divorce process. If an agreement cannot be reached, we present your claims before the family judge assigned to your case.

The key ways to resolve rental property during a divorce issues are as follows:

 

Selling the real property and dividing the proceeds.

There are pros and cons to having rental property. Selling the property provides immediate cash once the sale is completed. In addition, selling the property avoids having to work or rely on your ex once the property is sold.

However, if the property is a good source of income, then either or both spouses may need to look for other types of employment. The income from a viable rental business doesn’t just help provide an income. Often, if your spouse is the person who runs the rental property, your spouse will use that income to pay child support and any alimony award.

Normally, in cases involving rental property during a divorce, if the property is sold, the spouses will hire a commercial real estate broker to arrange the sale. The spouses need to decide how much each spouse will receive from the cash proceeds after the mortgage and other sales expenses are paid. The amount could be 50/50 but it could also be a different percentage if the equities favor giving you a higher percentage.

Having one spouse sell their interest to the other spouse (A buyout). 

This method often is used when one spouse was and is using the rental property as a major source of income. In this method, determinations have to be made about the property valuation for the divorce settlement. The spouses need to decide on the amount of the buyout. This amount is based on the value of the rental property and the overall terms of the property settlement agreement. For example, you might agree to sell your interest in order to keep the marital home. 

So, how do you value a rental property in a divorce? Our family lawyers normally work with real estate appraisers and professionals to decide how to value rental property. There are two parts to valuing rental property. 

  • The first part is the value of the land and buildings on the land. 
  • The second part is how much income (rents) the property generates – the rental income in divorce

Having both spouses continue to rent the property.

This resolution method requires that the spouses reach an agreement as to the responsibilities of each spouse to manage the rental property and an agreement as to how the income will be divided. Our family lawyers will review – when working with a spouse together on a business after a divorce is a viable option and when it is not. Some spouses can remain friends and business partners after a divorce is final. Most spouses find it very difficult to work with a spouse after a divorce is complete.

Additional considerations in a divorce and real estate division case

In considering rental property during a divorce, the spouses need to reach an agreement (or have the judge enter an order) determining the responsibility of the spouses to manage the property and how the income will be divided – while the divorce is pending and before the sale is completed.

Another possible resolution of a rental property during a divorce issue, depending on the scope of the rental property, is to divide the rental property so that you control some rental property and your spouse controls other rental properties.

At DeTorres & DeGeorge Family Law, our divorce lawyers help you get the most out of your divorce settlement. We help you understand your rights and your options so you can set your priorities and obtain the best settlement or order possible. To discuss rental property during a divorce, call us at 908-503-2925 or fill out our contact form to schedule an appointment. We have offices in Clinton and Florham Park.

Caitlin DeGuilo Toker
Caitlin DeGuilo Toker joined DeTorres and DeGeorge as an associate attorney in June 2014 and was named a partner of the firm in May 2019.Prior to joining the firm, Caitlin was associated with law firms specializing in the practice of family ...
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