It can be challenging to untangle years of accumulated assets during a divorce, especially when it’s a tumultuous time and emotions may be raw. Property division is one of the most distressing aspects of divorce, second only to child custody issues. For couples with rental properties among their assets and subject to division, this may be an additional bone of contention requiring careful navigation. When questions arise about how to divide rental properties during a divorce, an attorney experienced in California’s community property divorce law can help. But first, it’s important to understand the way this law works in general and then specifically for rental properties.
California’s Community Property Divorce Law
California is one of 9 community property states in the U.S. This means that the state considers all assets acquired during a marriage the property of both spouses, regardless of who actually pays for the property. It’s presumed that even if one spouse purchases a property in their own name, the fact that the other spouse contributed to household expenses helped to make such a purchase possible, therefore they have a vested interest in the property. The community estate in a marriage must be divided equally in a community property state. Some examples of common community property in a marriage include:
- All income and bank accounts acquired during the marriage
- All real properties such as the marital home, vacation homes, and rental properties
- All personal property including vehicles, furniture, and appliances accumulated during the marriage
- All debts acquired during the marriage
All of the above are subject to 50/50 division. Divorcing couples can negotiate the terms of this division with their lawyers and a mediator as long as the division remains as close as possible to 50/50. For example, if one spouse wants to keep the marital home they could “trade” it for one rental property of similar value. If one spouse wants the dining room furniture they could agree to give the other spouse the living room furniture and so on. If they can’t agree or the divorce is contentious, an impartial judge makes the decisions during a trial.
Assets that remain separate and belong solely to one spouse and aren’t subject to 50/50 division include the following:
- Any properties owned by a spouse prior to the marriage into which the other spouse did not invest significant money or time
- All property one partner inherited or received as a gift from a third party before or during the marriage
- Any property acquired by a spouse after the date of separation
It’s important to know the value of all assets, including rental properties, before beginning negotiations for a divorce agreement.
Dividing Rental Properties in California Divorces
Once all assets, including rental properties that fall under the umbrella of marital property, have been fully appraised it’s time for both spouses and their attorneys to meet and negotiate the terms for division. For rental property division, there are several options to consider including the following:
- Splitting the properties in an equitable manner with each spouse choosing a property while the other takes one of equal value until all properties are fairly divided. In cases of properties of widely varying value, one spouse may take two lesser-valued properties in exchange for one of high value
- Buy out the ownership of rental properties by using some of your share of the marital assets or refinancing in your own name to purchase your spouse’s share of one or more rental properties so they become your individual property. You could also agree to let your spouse do the same
- Sell the properties and split the profits 50/50. This is often the easiest and least contentious way to divide rental properties to meet California’s community property law requirement and is a good option except in cases where one spouse or the other has an emotional attachment to one or more specific properties.
The more properties a divorcing couple owns together, the more complex it becomes to navigate the division. A skilled, diligent divorce attorney can represent your interests during this process to ensure it’s fair and help you to accomplish your goals and move forward.