The property distribution portion of a divorce is often the most contentious. This is particularly true for high-net-worth individuals with complex assets, such as real estate investments. The family home is often an important part of this portion of the financial portfolio, but it may also include vacation and investment properties.
Any couple with real estate investments is wise to ask the following before finalizing their divorce.
#1: Is the property marital or separate?
The first step is to determine the status of the property. Family law matters like divorce are guided by state law, so the location of the divorce matters. If the divorce is in Virginia, the law treats real estate acquired during the marriage as marital property, subject to equitable distribution. This means the courts generally consider any real estate bought during the marriage with marital funds, regardless of whose name is on the title, a joint asset.
The courts may deem gifted or inherited property as separate property if it was not commingled with marital assets.
#2: What is the value of the property?
Establishing a fair market value for real estate is important to better ensure an equitable distribution. This often requires professional appraisals. There are many different valuation options, and in some cases, it is helpful to get more than one estimation before proceeding.
#3: What is the cost to maintain the property?
Keeping any form of real estate is about more than the initial cost. It is important to also take regular maintenance costs into account. This can include upkeep like lawn care and cleaning, as well as the potential need to replace appliances or structural components like the roof. Also, keep any homeowner’s association fees and taxes in mind when putting together an estimate of the cost to keep the property.
#4: What is the cost to sell the property in the future?
There are additional expenses for those who choose to keep property only to sell it in the future. Capital gains, for example, may apply.
#5: How can I protect these assets?
Protecting your real estate investments prior to or during a divorce requires strategic planning. Those discussing a divorce or believing a divorce could be in their future could consider a postnuptial agreement. Similar to prenuptial agreements, these agreements can outline how to handle real estate assets in the event of a divorce. Another option is the use of buy-out agreements. These involve one spouse buying out the other’s interest in the property, giving one party full ownership of the asset.
These five questions provide a starting point for determining how to best manage real estate investments during a divorce. It is important to carefully review the details of your situation and discuss the benefits and risks of each option. This will help mitigate the risk of surprises after the divorce is finalized.