According to the Centers for Disease Control and Prevention (CDC), almost 690,000 divorces occurred in 2021. A divorce will typically involve division of the couple’s assets, including real property. Individuals with real estate portfolios can benefit from understanding how divorces may impact their holdings. Learn more about divorce and real estate portfolios and discover how a Georgia family law attorney from The Millard Law Firm can assist individuals going through a divorce by contacting (678) 319-9500.
Divorce and the Division of Assets
The American Bar Association (ABA) defines divorce as the legal process where a court issues a decree stating that a marriage is no longer valid, enabling both parties to remarry if they wish. During this process, the court divides the couple’s property, stipulates spousal support, and, when the couple has children, awards child custody and support. Depending on the couple’s location, the divorce process may vary. For instance, some states enable couples to get a divorce first, and resolve custody and property issues afterward. In contrast, other states might require the couple to resolve all of these issues before granting the divorce.
Real Estate Portfolios as Investments
Real estate portfolios refer to collections of real estate assets for investment purposes. These real property assets may include, but are not limited to:
- Flipped homes
- Rental properties
- Real estate investment trusts (REITs)
Real investment portfolios may encompass large properties or numerous holdings, and constitute a substantial degree of wealth. At the other end of the spectrum, a real estate portfolio might consist of an inherited home the current owner leases for supplementary income, or of “fixer-upper” houses purchased for renovation, whether as a hobby or as a primary source of income. Real estate portfolios might also include undeveloped land used for hunting or recreation, as a title to the land itself would typically be counted by the court as an asset.
Do Investments Get Split in a Divorce?
Investments are often divided during a divorce. How they are divided is determined by whether the investments are premarital or marital assets. Premarital assets refer to the assets acquired before the marriage, which are typically not split between the spouses. In certain circumstances, however, assets bought with financing that was eventually repaid during the marriage might be partially considered as marital assets on the basis of the shared investment during repayment. In these cases, even though the assets were acquired prior to the marriage, both spouses may be considered to have gained an interest in them during the time they were married.
Any assets excluded due to a prenuptial agreement are not marital assets. If a divorcing couple has a legally valid prenuptial agreement, typically its terms will be honored by the court during the divorce proceedings. Prenuptial agreements can serve to simplify proceedings in some cases, but because it is difficult to anticipate every eventuality, it is not uncommon for disputes to arise over asset distribution even in cases for which both parties signed a prenuptial agreement prior to the marriage.
How Do Courts Divide Property?
Ensuring that previously shared assets are divided fairly is one of the essential responsibilities of a court during a divorce. Courts divide property during divorce proceedings in line with one of these principles:
- Equitable distribution: Most states use this principle, which involves splitting a divorcing couple’s earnings and assets fairly but not always equally.
- Community property: In the few states using this principle, a couple’s property is separate or labelled as community property. The term “community property” means that both spouses own the property irrespective of which spouse holds the property’s title. While the exact rules depend on the state, generally, any assets or income accumulated during the marriage may be considered community property, whereas income or assets acquired before the marriage are likely to be counted as separate property. If a spouse receives inheritances or gifts before, during, or after marriage, these are also commonly treated as separate property.
Learn more about divorce and real estate portfolios and how a Georgia family law attorney can help by contacting The Millard Law Firm for a confidential consultation.
What Is the Split of House Value on Divorce?
Divorcing couples split the amount of equity in their properties. This refers to the property’s market value minus any outstanding debts and sale costs. The spouses can ask a real estate agent or appraiser to estimate a property’s value. Alternatively, they may pursue the lengthy and costly process of asking a judge to rule on a property’s value.
After determining the equity, the spouses may then agree on its division, or the court may establish its division as part of its ruling. In many cases, an equal split may be reasonable if both parties made roughly equal contributions to a property’s purchase or mortgage payments. However, if contributions to a mortgage have not been comparable, or if one party used separate assets to fund most of the purchase, an unequal equity split may be more likely.
Factors Considered in Dividing Real Estate
Dividing real estate during a divorce can be a complex process since couples often argue over the current value and investment potential not only of the family home, but of any other real property to which either spouse holds title. Sometimes these disagreements arise not on the basis of the total valuation of the property, but from how the property is used. If a property is currently worth $500,000 and makes $20,000 in rental income each month, it is necessary to consider this income when evaluating the asset’s worth. The following factors often influence the value of real estate investments:
- The date of the property’s purchase
- The individual responsible for managing the property
- How the owners used the property
How Do You Split a Profit House in a Divorce?
When a couple goes through a divorce, they may decide to split their real estate assets in one of the following ways:
- Selling the property: In this instance, the couple will split the sale proceeds minus any taxes or sales costs owed. If the couple has an outstanding loan on the property and owes more than the property’s value, both spouses will share the balance owed on this loan minus the sale proceeds.
- Getting one spouse to purchase the other’s share: Divorcing spouses may do this in several ways. In some cases, one partner might buy out the other spouse via a cash payment. Alternatively, they may give the other spouse a share of their separate assets, take out a refinancing loan to release the equity, or agree to take on some of the other spouse’s debts.
- Deferring the sale: If the divorcing couple ends their relationship on positive terms, they may decide to continue co-owning the property and sell it at a later date. The couple may benefit from this option if the housing market does not currently favor sellers. In this scenario, the divorcing couple might rent out the property and share this income until the housing market improves.
How Can I Protect My Investments From Divorce?
Divorce and real estate are both high-stakes endeavors for many people. Following the tips below before the divorce proceedings begin may help individuals to protect their real estate investments:
- Gather and copy financial records for the last few years, including retirement, investment, and bank accounts
- Create a limited liability company (LLC), with a separate bank account, and establish a revocable trust
- Take out credit separately from the other spouse
- Acquire copies of property records and the other spouse’s financial documents
- Avoid keeping inheritance funds in accounts that are also in the other spouse’s name
- Create an assets inventory, assign values to each one, and locate evidence that proves whether these assets are nonmarital or marital property
- Transfer the assets and funds you wish to protect to the revocable trust and bank account of the established LLC
- Avoid mixing business and personal payments and considerations with the LLC
- Think about hiring a mediator to avoid lengthy divorce proceedings and speed up the division of assets
- Consider other trust options, including discretionary and domestic asset trusts; persons who have not yet married may wish to also consider a prenuptial agreement
Contact a Georgia Family Law Attorney Today
When a couple decides to get a divorce, they are often entering into a complex, lengthy, and challenging period, particularly when the division of property may involve high-value assets. If you have a real estate portfolio and are going through a divorce, consider contacting a seasoned divorce attorney. Find out more about divorce and real estate portfolios and learn how a Georgia family law attorney from The Millard Law Firm can help individuals experiencing this major life change by calling (678) 319-9500.
