Dealing with rental property in a divorce

[zoltani]

Well, I am going through a divorce and wondering what we should do with our rental properties. We live in a community property state, and these will be split 50/50. What is the best course of action? Should we just sell the properties and split the proceeds? Keep them but set it up so we both have a 50% stake in the properties? Seems like if we keep them we will be tied together by these properties.

My initial feeling is to sell them, split the proceeds, and walk away, but maybe I am missing something or just not thinking straight. I do like that income coming in each month.

[Daleth]

Talk to your lawyer. Another option may be to appraise them all and split them up equally (for instance, if you have seven properties and three of them are worth the same as the other four, then you get the three and she gets the four, or vice versa). Until you're actually divorced you can probably transfer your rights in these properties to each other (i.e. you give her your half of three houses, she gives you her half of the other four) without paying transfer tax... that's another question for the lawyer, and your divorce lawyer might need to consult with a real estate lawyer to be sure.

If there's no handy solution where X number of the rentals are worth the same as the other Y number of them, you may be able to balance it out with cash or something else. For instance, if three houses are worth $20k less than the other four, maybe the person who gets the four gives $20k in cash or stocks or a car to the person who gets the three.

This way you can each decide whether you want to keep them or sell them.

[zoltani]

Thank you for the thoughts. Honestly I wanted to get through this without lawyers, and I am not sure if/why they are needed in a community property state where it usually goes 50/50 unless there is some special circumstances. We both earn about the same salary, no kids. 

[Drifterrider]

Well, I am going through a divorce and wondering what we should do with our rental properties. We live in a community property state, and these will be split 50/50. What is the best course of action? Should we just sell the properties and split the proceeds? Keep them but set it up so we both have a 50% stake in the properties? Seems like if we keep them we will be tied together by these properties.

My initial feeling is to sell them, split the proceeds, and walk away, but maybe I am missing something or just not thinking straight. I do like that income coming in each month.

Have you considered each of you keeping half the properties (solely, not jointly).  Each would have an income.

[zoltani]

Well, I am going through a divorce and wondering what we should do with our rental properties. We live in a community property state, and these will be split 50/50. What is the best course of action? Should we just sell the properties and split the proceeds? Keep them but set it up so we both have a 50% stake in the properties? Seems like if we keep them we will be tied together by these properties.

My initial feeling is to sell them, split the proceeds, and walk away, but maybe I am missing something or just not thinking straight. I do like that income coming in each month.

Have you considered each of you keeping half the properties (solely, not jointly).  Each would have an income.

I have considered it. We currently have 3 rentals, own 2 outright and owe on the 3rd. Would have to come to an agreement on how to split 3 houses 2 ways...

Maybe it would be best to sell the one we owe on, pay off the debt, and split the other two. They get about the same rent, and I would actually prefer the one that rents for a little less.

[MsPeacock]

Well, I am going through a divorce and wondering what we should do with our rental properties. We live in a community property state, and these will be split 50/50. What is the best course of action? Should we just sell the properties and split the proceeds? Keep them but set it up so we both have a 50% stake in the properties? Seems like if we keep them we will be tied together by these properties.

My initial feeling is to sell them, split the proceeds, and walk away, but maybe I am missing something or just not thinking straight. I do like that income coming in each month.

Have you considered each of you keeping half the properties (solely, not jointly).  Each would have an income.

I have considered it. We currently have 3 rentals, own 2 outright and owe on the 3rd. Would have to come to an agreement on how to split 3 houses 2 ways...

Maybe it would be best to sell the one we owe on, pay off the debt, and split the other two. They get about the same rent, and I would actually prefer the one that rents for a little less.

Well, you split the agreed upon value of the houses, and refinances into your name (or ex-s) name alone if needed. Selling has tax implications that you don't have if you are just dividing them up post divorce (at least as I understand it). The amount of the rental income isn't the issue, the value of the property itself is the issue.

House 1 : 100,000
House 2: 80,000
House 3: 50,000

Total: 230,000. You each get $115,000 worth of houses. One person might keep house 1 and the other might pay them $15k for house 2 and refinances/retitle into their name only (quit claim deed and all that). Of course, you have to account for all the other monies that you are splitting up as well. Money changes hands somewhere to make it all equal to 50/50 if that is what you agree to.

Having a lawyer review your settlement agreement isn't a bad idea - you should each cough up a few hundred dollars (or a thousand or whatever) to make sure that you have your legal ducks in a row after you agree to how you are going to do this.

[Ensign1999]

My understanding of community property is that while each of you technically owns 50/50, if you divorce it doesn't have to be divided that way.  If the divorce is civil, and the two of you agree on terms, then you can divorce any way you want.  If the divorce is not civil, you both have lawyers, then you end up fighting over how to split the dog 50/50.

Hopefully it is a civil divorce, and you can sit down with your soon to be ex and hash out terms that you both feel are fair.  Maybe you end up with 48% of the assets and she gets 52%, but you are happier because you were able to get the items you wanted and were able to walk away without it become hostile.

Once you have decided on how you want to split your assets, then I would still pay a lawyer to help draw up the proper paperwork so you know it is done right and doesn't come back to haunt you later on.

Good luck with this, divorce is never easy, but hopefully yours goes as smoothly as possible.