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How are rental properties handled during divorce?

On Behalf of | Mar 8, 2024 | Family Law

When owners of rental properties go through a divorce, the fate of these assets is determined by several factors, including Hawaii laws, the circumstances of the marriage and the couple’s individual preferences.

Rental properties are significant financial assets and sources of ongoing income, making their division in a divorce potentially complex.

Legal considerations

The process starts with identifying whether the rental properties are marital or separate. Marital property includes assets acquired during the marriage, while separate property refers to assets owned by one spouse before the marriage or received as a gift or inheritance.

In equitable distribution jurisdictions like Hawaii, marital property is divided fairly, though not always equally. When courts are called upon to make decisions if couples can’t reach agreements on their own, a decision will be based on factors like each spouse’s financial contribution, future needs and the length of the marriage.

Division strategies

There are several ways rental properties can be handled in a divorce:

  • Sell the properties: The couple may sell the rental properties and divide the proceeds. This option is often chosen to liquidate the assets and distribute the funds, allowing both parties to start afresh.
  • One party retains ownership: One spouse may keep the rental properties and compensate the other spouse with assets of equivalent value. The deciding factor could be the ability to handle ongoing responsibilities and financial obligations associated with property management.
  • Co-ownership: In some cases, ex-spouses decide to continue co-owning and operating the rental properties post-divorce. This arrangement requires a high level of cooperation and trust because both parties must agree on management decisions, distribution of income, and handling of expenses.

A division of rental properties results in certain tax implications, possibly including capital gains tax and property transfer taxes. Mortgage and ongoing expenses related to property maintenance are also considerations. Anyone working through this process should ensure they understand their options and how they may impact their future. Seeking legal guidance is a great way to get started.