Rental Properties and Divorce

Posted by: Rick Reade

Rental properties are often considered a good long-term investment with potential for income each month from the tenants. However, during a Massachusetts divorce process, rental income can present problems. This is because the properties are assets that must be divided, and they are also sources of income that may be considered for support calculations.

When dividing property, the court will look at various factors surrounding the property when making determinations. The Court can order the property sold, or can award the property to one spouse subject to an equity buy-out of the other. Here are some factors the court may consider:

  1. When the property was purchased;
  2. Source of assets used to purchase property;
  3. Who was the principle in locating and completing the purchase;
  4. Who was the principle in management of the rental;
  5. Who has the financial ability to own the property post-divorce; and
  6. The value of other assets held by either party or as part of the marital estate.

The court must also determine who will keep the income generated by the property. The court will consider many factors, including how the income stream overlaps with property division. In many situations when a couple has a rental property when they divorce, only one spouse will continue to manage the rental after the divorce. However, the court must also determine who will receive the rental income as well as whether that income should be included in a support order. Generally, the court will assign one party to manage the property who will account to the other for the net rental income minus costs incurred for agreed-upon major repairs. The net income will then either be split equally and not included in support calculation, or can be kept by one party and included in a support order. Occasionally, a court will make an order with a hybrid of those two scenarios based upon the specific facts of the case. One important factor is how well the spouses can communicate and cooperate with each other post-divorce.

As a long-term issue, the question typically arises whether a party should be given credit for the reduction of a mortgage while the divorce is pending. Again, this is an issue to be determined by the court, but a negotiated agreement at the start of the divorce process is helpful in reducing later conflict.

While each case is different, and the specific facts should be considered in each case, this can provide some guidance for those who hold rental properties and are going through or contemplating a divorce.