How Rental Property Ownership Can Affect Divorce

Rental property and divorce

A divorcing couple that owns rental property must come to an agreement about the disposition of the property. If it is determined to be marital property, it may be sold and the proceeds split or it may continue to be operated jointly.

When estranged couples in North Carolina cannot agree about the disposition of marital assets, the court decides. If you own rental property with your estranged spouse, you should consult an experienced divorce lawyer as soon as possible to ensure that you have a say in what happens. If you can agree, the court may accept your decision as part of a separation agreement.

The family law attorneys at Charles R. Ullman & Associates in Raleigh, N.C., can represent you in a separation and divorce and provide guidance to help protect your interests in the rental property you own. Attorney Charles Ullman is certified as a Specialist in Family Law by the North Carolina State Bar and is well-versed in the complex process of marital asset division involving real property and family businesses.

What Happens to Rental Property During Divorce

One of the biggest tasks in a legal separation and divorce in North Carolina is settling upon an equitable distribution of marital property. Equitable distribution is basically a three-step process:

  • Identify assets as marital or separate property
  • Assign a fair market value to individual pieces of marital property 
  • Determine an equitable division of marital property between the two parties.

When a divorcing couple is considering the disposition of rental property, the first decision is whether it is marital property. Marital property is usually acquired during the marriage. If one spouse owned rental property prior to marriage and the other had little to do with the business, it would be properly considered separate property not subject to equitable distribution.

However, if the second spouse had put sweat equity into the property, such as through maintenance work or running the rental business, they might have a legitimate claim that it has become marital property.

Once it’s determined that rental property is a marital asset, there are three ways to distribute it equitably:

  • Continue to own it jointly 
  • Sell it and divide proceeds
  • Allow one party to assume ownership

Joint Ownership in Divorce

If you and your divorcing spouse remain on friendly terms, you may continue to benefit from operating your rental business. If it is profitable and you each have a defined role you are satisfied with, you might want to put off a sale that would not be profitable. 

Joint ownership of a rental property after a divorce would require establishing a contract that defines rights and responsibilities. It would include, for example, job duties, how to split proceeds, and circumstances that could prompt a sale. 

This may seem like a simple option, especially if the property is performing well and you can truly work together. But after your divorce, as your lives grow further apart, owning property together may become more complicated. 

Rental Property Sale with Divorce

Selling rental property and splitting the proceeds as part of your separation agreement could result in a significant amount of money for each of you as you start a new life. The first year after a divorce is often one of financial adjustment, especially when divorcing after age 50.

If the two of you can agree to let go of the rental property, you could create a nest egg to provide financial security and handle financial issues that arise following the divorce.

Selling jointly owned rental property might also be part of a clean break from your marriage. 

However, there may be reasons to hold onto the property, including a down market or tax implications of a sale.  

Rental Property and Equitable Division of Assets

Allowing one spouse to assume full ownership of rental property that both owned or operated while married is more complicated but can be done in a manner to ensure it is an equitable solution.

This requires that the rental property be appraised as real property or as a business. To do this, we could put you in touch with a business consultant we regularly work with who would examine the property, the business’s books, the market, and other factors and write a report for you.

In an amicable divorce, you and your spouse could share the cost of one appraisal. If you’re facing an adversarial divorce, you’ll each need to pay for your own appraisal, and then come to an agreement on the value if the appraisals differ. Otherwise, a judge would decide the disposition of the property.

Once we have the value of the rental property, it can go to either spouse. This would be accomplished by the receiving spouse:

  • Buying out the other spouse’s share of the property
  • Giving the other spouse assets that approximate the value of their share of the rental property or rental business.

Buying out the other spouse would typically mean paying them half the value of the rental property. Trading other assets would require the assets to be appraised and, if other assets individually or combined were of similar value, any agreement would be subject to negotiation and final approval by a judge.

The high value of real estate makes the disposition of rental property a central issue in many divorce agreement negotiations. 

We Can Assist with Rental Property Division in a Divorce

It is best if a divorcing couple can come to an agreement as to how rental property will be equitably divided between them. As your divorce attorneys, Charles Ullman & Associates will advise you to ensure your rights and financial interests are protected as we guide discussions toward your stated goals. In some cases, an independent mediator may help by facilitating a couple’s negotiations.

When a divorcing couple in North Carolina cannot agree, they file a claim for equitable distribution in district court and a judge decides. As your attorneys, we would state your case and present supporting evidence and/or witnesses.

Before you make any decisions regarding the disposition of rental property as part of a divorce, our experienced divorce attorneys can listen to what you want and explain all of your options, including possible tax implications. 

Contact Charles Ullman & Associates to engage respected, experienced, and compassionate divorce and family law attorneys. You need trusted guidance while going through the process of separation and divorce. You can trust us to help you through the legal process efficiently and effectively so you can transition to the next phase of your life.


Charles Ullman & Associates provides you respected, experienced and knowledgeable divorce and family law attorneys. You can trust us to help you through the legal process efficiently and effectively so you can transition to the next phase of your life. Our community involvement reaches beyond charitable support of important causes. We launched our own movement in Fraternities4Family and provide scholarships to able students in need.