What Happens to Investment Property in Divorce?

If you have a short- or long-term rental property or any type of investment property, you may be concerned about what happens to that property in a divorce and how it will be divided. Alabama is an equitable distribution state, which means the marital property will be divided equitably, not equally or 50/50.  

How Does Equitable Distribution Work in a Divorce?  

First, you and your partner’s property (as well as other assets and debts) will be divided into marital and separate property. Marital property includes what you procured during the marriage, while separate property includes assets you brought into the marriage or obtained through inheritance.  

In some instances, separate property can become marital property, which is “commingling property.” Let’s say that you purchased a rental property or piece of land before you were married. If your spouse, during your marriage, contributed to the property maintenance, mortgage or insurance payments, or repairs, that property could become marital property.  

After, your property has been defined as marital or separate property; your investment properties will then need to be assigned a value. You and your spouse can split the cost of an appraisal, or you can solely handle the cost of appraisal yourself.  

Finally, the investment property will be divided between each party. This division may be determined by a judge, or in the interest of having more of a say, you and your spouse may divide the property with the help of your attorneys.  

How to Protect Your Investment Property in a Divorce 

If you do not have a pre- or post-nuptial agreement or a marital property agreement with your spouse, then you may be looking for alternative ways to ensure you keep the investment property you love. There are not many ways to fully guarantee the protection of your investment, however, there are some steps you can take.  

Protect Your Assets Before Divorce 

If you haven’t filed for divorce yet, consider being proactive in the protection of your investment property. Consider getting a postnuptial agreement. Try not to commingle property that you have inherited or purchased before the marriage and contact our attorneys to see how we can best help you. Also, a key factor in protecting your assets, before or after you begin the divorce process, is having a property inventory. 

Be Sure You Have a Detailed Property Inventory  

In making sure you walk away with what you want and protect your investments, you should create a property inventory. You should know what you have, what you want to keep, and what each property is worth. With a detailed inventory, your attorney can understand what’s at stake and how to best negotiate.  

File for an Uncontested Divorce  

When you file for divorce, the best way to protect your investment property is to file uncontested. By filing uncontested, you don’t have to wonder or worry about how a judge will decide to allocate the property. When you file uncontested, you and your partner have already agreed on how you want to divide your property (and a host of other items).  When you divide your investment property, you and your partner (as well as your respective attorneys) can decide to:  

  • Sell the property, which can have fee and tax implications 

  • Operate the rental together 

  • Buy one another out, or 

  • Negotiate and offer equivalent assets.  

What to Do With Your Investment Property during a Divorce 

If you are in the middle of your divorce process, you may have questions about what to do with the investment property in the meantime. One option is: you and your spouse can agree to leave the earnings untouched. Both parties can create a property management account during the divorce to protect and collect the earnings. The money would be left alone excluding maintenance, taxes, insurance costs.  

To speak with our team at Shaw Family Law about how we can best support you as you navigate your divorce and the division of investment property, contact us online or call (205) 259-7650 for more information.