Divorces are never easy, even when a splitting couple remains on friendly terms. In many cases, complex asset divisions still lead to conflict, even among otherwise agreeable participants. Owning multiple properties is a clear example of this. Because of the assets' value, agreeing isn't always simple. If the properties have vastly different values, deciding what to do with them can be difficult. Here's a look at what often happens when divorcing spouses own multiple properties.
Property Classification During Divorce
In cases of divorce, the first step in dealing with assets is determining which ones qualify as marital assets. Certain kinds of property may belong exclusively to one spouse or the other. Jurisdiction plays a major role in that determination, as different places have different laws on the subject. Prenuptial and postnuptial agreements, when they exist, may also play a role. In general, asset classification happens as follows:
Marital Property
In most cases, real estate purchased during a marriage qualifies as marital property, even if only one spouse's name is on the deed.
Individual Property owned before a marriage began, individually inherited property, and gifted property often belong to one spouse but not the other.
Property Valuation Basics
When a divorce involves multiple properties, the courts must assign a value to each during divorce proceedings. Property valuation itself can become contentious. Often, one spouse will cite property tax assessments to determine value, while the other will obtain a professional appraisal.
Calculating Property Equity
The sale value of a given property doesn't necessarily reflect what it's worth to a divorcing couple. Properties often have mortgages and other debts secured by the property, which reduce sale proceeds.
Consider a divorcing couple with three separate properties at issue:
A family home with a sale value of $750,000 and an outstanding mortgage of $250,000, leaving $500,000 in equity
A vacation home worth $300,000 with a $200,000 outstanding mortgage, leaving $100,000 in equity
A rental property worth $250,000 with a $100,000 mortgage, leaving only $150,000 in equity
How Division of Multiple Properties Works
Generally speaking, courts will consider the total real value of all marital assets when it comes to property division. If the couple has other assets beyond homes and properties, they count, too.
Community Property vs. Equitable Distribution
State laws governing property distribution in a divorce generally follow two main principles. States with community property laws generally require dividing all marital property equally, unless a binding legal agreement states otherwise.
Common Property Division Options
It's important to remember that selling all marital property and splitting the proceeds isn't the only option. A divorcing couple may agree to:
Divide property ownership without any sales
Have one spouse buy the other out of their share of individual properties
Sell some properties and divide ownership of others
Exchange rights to other assets to keep a given property
Dealing With Rental and Investment Properties
When a couple owns rental or investment properties, the value of the properties themselves may not be the only consideration. These properties often generate income and may have existing lease agreements that make selling them difficult.
For rental properties, courts may evaluate them like they would any other business. They'll consider the income they generate, tax liabilities, maintenance costs, and outstanding mortgages.
What Happens to Mortgages and Other Property Debts?
Dividing properties with existing mortgages or other debts doesn't automatically alter the terms of those debts. For example, signing a divorce agreement that grants ownership of a property and assigns the mortgage responsibility to one spouse doesn't absolve the other of their obligation to their lender. Mortgages remain enforceable on their own terms.
A Divorce Lawyer's Role in Property Division
In any divorce involving large numbers of assets and multiple properties, hiring an experienced divorce lawyer like those at Davis & Associates is advisable. They'll understand the state-specific laws governing asset division and the implications of sales and ownership transfers. They can also arrange professional appraisals and work with financial experts to minimize the tax implications of a divorce involving property sales.
Divorce attorneys for opposing spouses can also work with each other to come up with a fair property division agreement. Often, allowing lawyers to do the negotiating on your behalf can prevent your divorce from becoming acrimonious. And of course, they can safeguard your rights throughout the process, so you can leave your marriage without fear of hidden consequences haunting you later.
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