Dividing Rental Income in Divorce

Investment rental properties are subject to the same community property division rules as any other asset. In California, this means that the asset is to be equally divided between the spouses, unless the rental property falls under “separate property” rules. (This may be the case if, for instance, the property was purchased by one of the spouses alone prior to the marriage.) This can be a complex area, as exceptions can arise to a degree if assets are “co-mingled.” An experienced property division attorney at Cardwell Steigerwald Young, LLP can help you to understand any implications in your own case.

The first thing to determine is whether you are looking at a separate asset (owned or acquired by one spouse prior to marriage, or was a gift or inheritance to one spouse during marriage), or a shared marital asset (acquired during marriage).

The determination may be complicated by issues such as co-mingling of funds, marital funds being used to pay down the mortgage or improve the property, or if the couple in question addressed this particular property as part of a pre-marital or post-marital agreement. Whatever the specific circumstances of your individual case may be, clarifying the characterization of the property is the first step.

Next, it is necessary to know the value of the property. A third-party surveyor and appraiser will be able to give an unbiased opinion on the worth of the property, and their advice will be pivotal when it comes to weighing the potential advantages and disadvantages for keeping or selling your interest in the property. Full understanding is key to negotiating a fair and equitable settlement.

Often couples will sell the property and divide the proceeds of the sale. Or, they trade their interest in the asset in exchange for interest in other aspects of the marital estate. However, in instances where a rental property is generating significant income, couples may quite prefer to keep it. There are also considerations of a large capital gains tax bill to pay if the property were sold. No tax is owed is the parties decide for one spouse to buy out the other. In any case, splitting the income in a rental property may be a desirable outcome.

With community property rules, if a property was acquired during the course of the marriage with marital funds, then both spouses are entitled to half the value of the property – this includes half the rental income it generates.

The IRS considers rental income to be a form of regular income – so tax implications need to be considered by couples wishing to pursue this path. If you own a partial interest in a rental property, you are responsible for reporting and paying taxes on that portion of the rental income.

Contact Cardwell Steigerwald Young, LLP

The experienced San Francisco property division attorneys at Cardwell Steigerwald Young, LLP are standing by to help you through any nuance or complication of your own property division case. Contact our esteemed team of legal professionals to begin discussing the details of your own situation today.

Source:

selfhelp.courts.ca.gov/divorce/property-debts