Rental Property During a Divorce

Texas is a community property state, which means that divorcing couples are required to divide all of their marital assets equally upon divorce.

This applies to all marital property, or assets that were acquired during the course of a marriage, including the family home, business interests, personal possessions, and rental properties.

Unfortunately, dividing real estate can be a complicated process, so if you and your spouse are contemplating divorce, please don’t hesitate to call our office to speak with an experienced attorney about your own divorce and rental property-related questions or concerns.

Selling Your Property 

Most assets, when acquired during marriage, are considered marital property, regardless of whose name is actually on the title, deed, or ownership papers. This is also true for rental properties, which, like any other marital asset, must be divided equitably upon divorce.

Dividing real estate can take a number of different forms, but one of the most common ways that divorcing couples deal with rental properties is to sell them and then divide the profits equally. However, this option isn’t right for everyone, as there are important tax implications that divorcing parties should consider before making a sale. 

Offering an Equivalent Asset 

It is also possible, when only one of the spouses wants to retain a rental property, for that party to offer the entire portion of a different marital asset to his or her spouse in exchange for the rental property. However, this is only possible when one of the spouses voluntarily agrees to give up property rights and if the value of the asset offered in exchange is equal to the value of the rental property in question.  

Operating the Property Together 

Deciding the fate of a rental property is much more difficult when both spouses wish to retain a portion of their investment and control over that property. In these cases, the parties should carefully consider whether they can continue to operate the property together once their divorce is finalized. If they believe that they can work together, the parties could enter into a contract, in which they agree to manage the property together and divide the proceeds.

The Importance of Rental Property Appraisals 

Regardless of a couple’s decision regarding the fate of their rental property, the parties should only move forward with their negotiations after their property has been professionally appraised.

While it is technically true that couples can agree upon the value of a piece of real estate without having the benefit of a professional appraisal, taking this route is usually not encouraged, as one spouse could deliberately misrepresent the property’s value, allowing the other party to accept a lower value asset in exchange before selling the property for a higher price.

To avoid these risks, divorcing couples should retain an experienced appraiser who can determine the exact value of the property and can ensure that it is properly categorized as an asset, a liability, a source of income, or a combination of these options.

In addition to hiring a professional real estate appraiser, couples are also often encouraged to speak with a forensic accountant who can explain the tax implications of retaining or selling the rental property. 

Temporary Orders

A significant amount of time can pass between filing for and actually obtaining a divorce, so it is not uncommon for couples who own rental properties to enter into temporary property agreements while their divorce is pending, in which they agree on the following issues:

  • Who will be responsible for making tax or insurance payments on the property;
  • Who will pay for the cost of emergency repairs and general maintenance; and
  • How rental income will be managed while the divorce is pending. 

For help coming up with your own temporary property agreement, please contact our legal team today. 

An Experienced Texas Divorce Attorney 

To speak with an experienced divorce attorney about the fate of your own rental properties if your marriage is dissolved, please call the Law Office of Ben Carrasco, PLLC at (512) 320-9126 today. 

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