Investing in real property can be a savvy move. Yet, it can lead to tension when it is co-owned and the co-owners have a falling out. For example, for many couples, real estate holdings are the most valuable property that they may need to divide if/when they divorce.
There could be a slightly different approach to division of such assets employed for the three different types of real property listed below.
A primary residence
One of the most common real estate holdings that people argue about during divorce is the home where the couple lived together during the marriage. It is typical for both spouses to have at least a partial interest in the marital home and to therefore need to work out an arrangement to share the home equity after they divorce. Retaining possession may be a goal for some people because of their children’s needs or emotional attachment to the property.
Vacation homes
Like a primary residence, a vacation home or cabin may have both financial value and emotional significance. Even if they know they cannot live at that property, they may still have a desire to retain it because of the memories associated with the property or its likely long-term resale value. In litigated divorces, second homes may be at higher risk of liquidation in the property division order, especially if couples still owe a high balance on the mortgage for the property.
Investment properties
Some people purchase vacant land because they anticipate that an area will develop in the next few decades and that they can therefore sell that land for far more in the future than they paid for it initially. Others might buy distressed properties to fix them up and either rent them to others for a stream of income or to relist them and flip them for profit. Such properties can become a point of contention because they represent future financial profit, not just a previous investment.
With each of these types of real property, there are generally two main concerns. Whether the property is truly a marital asset or not will be an important consideration. Knowing the fair market value of real property is also important. The value of the real estate that couples share could influence other major property division decisions, such as who retains a family business or how the couple splits retirement savings.
Those who want to protect themselves during divorce and pave the way for the best future possible will need to pay close attention when itemizing their marital estate and valuing their largest assets, like their real estate holdings. Understanding how real property may complicate a pending divorce could help those preparing to file or to respond to a spouse’s divorce filing.