You may remember the exact conversation in which you and your spouse developed the idea of purchasing rental properties to diversify your investments. Year by year, you accumulated multi-unit residential buildings and commercial properties with a view to having a secure retirement. However, things don't always go as planned.
If you and your spouse are considering divorce, you probably have a lot to discuss. Foremost is child custody, and then you have your family home and other properties to divide. The fate of your investment real estate may slip your mind. However, in California, community property is any asset you and your spouse obtain during your marriage, and this may include those investment properties.
Who owns what?
Dividing investment properties between you may be a complex undertaking. Unless you and your spouse signed a prenuptial agreement outlining the division of your rentals, you will have to decide — or allow the court to decide — what to do with them. It may be easier than you think if you or your spouse owned any of the properties prior to your marriage. Additionally, you may have titled the properties separately or divided the responsibilities for each of the properties, which may help you determine how to separate them.
However, if the real estate was purchased and managed jointly, you may begin by assessing how the properties fit into your finances. Are they retirement investments alone, or do they provide an essential income to your household? Are some leased and some vacant? Are there any properties that are now turning a profit? Discerning these factors and others will be essential in determining a fair division of property.
Just as with a family home, the division of rental properties comes with limited options:
- Continue sharing ownership and responsibility for the units as business partners
- Sell everything and split the profits
- One spouse buy out the other spouse's interest in the investment properties
This final option may require that the purchasing spouse be able to obtain a mortgage to refinance the investment property without the other owner. Whichever option you choose, you can expect the resolution to extend beyond the settlement of your divorce. You can also plan to spend a great deal of time and effort negotiating with your spouse to achieve the goals you set for the properties. Having an attorney to advocate for you will improve the chances of getting a fair and equitable settlement during property division.