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How are Rental Properties Divided in a Divorce?

Colorado is an equitable division state, not a common law state. This can work to the advantage of a spouse making a separate claim to a piece of rental property. In an equitable division state, marital property, including rental property, is not automatically assumed to be divided equally as part of a divorce. Instead, Colorado attempts to divide marital property between the spouses, including rental property, in a more equitable or fair manner. In doing so, the court must first decide if the rental property is marital property or separate property.

What is Marital Property in Colorado?

Colorado defines marital property as anything bought or received by the spouses during the marriage. Marital property does not include:

  • Anything acquired by a spouse before marriage;
  • Gifts to one spouse alone by a third party;
  • Inheritance by one spouse;
  • Property excluded by a legal agreement, like a prenuptial agreement; or
  • Property acquired after a legal separation.

Therefore, if the rental property fits one of the above exclusions, that property remains the separate property of that spouse alone. As a note, when separate property brings in rental income during a marriage, the net rental income could be used to calculate alimony or child support.  Additionally, increases in value to separate property during a marriage are considered marital property.  In such instances, the spouse with premarital property cannot be divested of it.  However, they could be required to pay their spouse money to compensate them for their share of the increase.

Do Rental Properties Need to be Sold in a Divorce?

If the court decides that rental real estate is separate, the other spouse has no claim upon that property.  Assuming that a court would determine or the parties agree that rental property is marital, the first step is having the property appraised to determine the value, unless the parties agree upon a value without a full appraisal.  Sometimes a historical appraisal may also need to be done going back to the date of marriage.  In other cases, the real estate might be premarital, but there may still need to be a valuation to determine any increase during the course of the marriage.  Increases in value to separate property during a marriage are considered marital property.

Once the property value is determined, the spouses can handle the rental property however they choose, including:

  • Selling the property. If neither wants to operate the rental property, the spouses can sell the property and split the proceeds. It is wise to talk to a tax professional about any tax implications of a sale;
  • Trading an equivalent marital asset. If one spouse wants the rental property, the other spouse can keep an asset of an approximate value. Again, there may be tax implications to discuss with a family law attorney; or
  • Operating the rental property together. If the spouses can work together, they can establish a legal agreement and work together to manage the rental property, split property expenses and divide the proceeds from rental property income. This must be done via an agreement and a court cannot require spouses to jointly own and maintain the property.

This is not a finite list. Spouses may divide rental property any way they choose in their divorce so long as it meets the court’s approval of a fair and equitable division of property.  If the spouses cannot agree on how to deal with a rental property, the court will ultimately make the decision at  your final divorce hearing.  This can include the court ordering the property sold or awarding it to one of the parties.

Before making any decisions regarding rental property in your divorce, contact the experienced property division attorneys at Plog & Stein, P.C. Our property division family law attorneys can discuss your best available options based on your specific circumstances, along with any tax ramifications you could face. Plog & Stein, P.C. wants to protect your legal interests while ensuring you receive your just share of the marital property. Our attorneys are also available to help you with any of your other divorce-related needs, including, but not limited to:

  • Child support;
  • Child custody and parenting time; and
  • Spousal support and temporary maintenance.

Contact our Colorado family law and divorce attorneys to schedule your appointment at Plog & Stein, P.C., today.

Author Photo

Stephen Plog, co-founder of Plog & Stein, P.C. in 1999, is a dedicated family law attorney with almost two decades of expertise in Denver. Focused exclusively on family law since 2001, he excels in both intricate legal writing and courtroom litigation, having navigated cases in all Denver metropolitan area District Courts. Steve’s comprehensive background, including a Bachelor’s Degree in Psychology and a law degree from Quinnipiac University School of Law, underscores his commitment to providing insightful and personalized representation in family law matters.