No matter whose name is on the title, if you and your spouse acquired a rental property during your marriage, California law considers it marital property – otherwise known as community property. According to state law, all community property is divided in half in a divorce case, regardless of whether or not this is equitable or fair. Luckily, you and your spouse will have several options for dividing a rental property before the matter must go to court.
California’s Community Property Law
California’s community property law states that if a divorce case goes before a judge, the courts will divide all community property evenly – a 50/50 split. Evenly does not necessarily mean equitably (fairly). In an equitable division state, the courts assess each case and divide jointly owned assets and properties based on what is fair for each spouse. In California and other community property states, however, marital property is split down the middle, regardless of the couple’s situation.
Is Your Rental Classified as Community Property?
California law identifies community vs. separate property based on when the asset was acquired. It does not look at who owns the property or whose name is on the title. Any property or asset that was owned prior to the marriage is classified as that person’s separate property, unless the couple commingled the asset upon marriage. Commingling an asset may involve adding the other spouse’s name to the property title or mortgage lender agreement. A property that was gifted or passed down through inheritance to one spouse during the marriage is also separate property.
Separate property will not be touched by the courts during a divorce case. Your rental property may be considered community property – and therefore at risk of being divided in half in a divorce case – if you and your spouse acquired the property during your marriage. In this case, the property is considered part of the community and equally owned by both of you, regardless of whether one of you put more time or money into the property.
What Options Are Available to Divide Rental Properties in a Divorce?
If your rental property is considered marital or community property for divorce purposes, you and your spouse may be able to work together to come to an agreement on how to divide the asset. If you can compromise and reach a settlement, you can avoid taking the issue before a judge. There are a few different options available to a divorcing couple that owns rental properties in California:
- Keep the property and operate it together. Option one is for both of you to continue to jointly own the rental property, operate it together and split the proceeds. This may be the right choice if you do not want to sell the property for any reason and you’re comfortable continuing a business partnership with your ex-spouse after your divorce.
- Trade for an equivalent asset. If one of you wants sole ownership of the rental property, that party may be able to make an offer during settlement negotiations. For example, the requesting party may offer to trade for an equivalent asset, divide multiple rental properties of equal value between each other, or buy out the other spouse.
- Sell the rental property and split the profits. The third option is to sell the rental property and divide the profits. Have your rental property appraised to determine its current market value. This can help you and your spouse decide if selling the rental property and splitting the profits is the right choice for you at this time.
The best resolution for you and your family will depend on factors that are unique to your case, such as your goals, priorities, and the income and earning capacity of each spouse. For more information about how to divide rental properties during a California divorce case, contact the San Diego divorce lawyers at Boyd Law. Initial consultations with our divorce attorneys are free.