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How Are Investment Properties Divided During a Divorce?

How Are Investment Properties Divided During a Divorce?Usually, when people hear about a couple deciding to divorce, they react from a place of sympathy. Regardless of whether the couple’s family and friends were supportive of the marriage or not, no one wants to hear that a couple has decided to divorce. However, when we hear certain aspects of, say, a celebrity couple’s divorce proceedings, we listen to every little bit of information like it is some form of entertainment. Part of the reason for this intense interest in the divorce proceedings – aside from being nosy – is that we are interested in seeing how the celebrity couples’ assets will be divided. Who will keep the mansion? Who will get the pet that was flown over from another country? What happens to all the designer gowns?

Of course, you don’t have to be a celebrity to have substantial assets, like art collections or designer gowns (or designer pets). For many couples, those “substantial assets” include investment properties, and dividing them in a divorce can be a complex process. The types of investment properties that are divided in high asset divorces are those which the couple has acquired throughout their marriage. Some examples may include commercial buildings, rental properties, or second homes. In a perfect world, the couple would be able to come to a mutual agreement on how each marital property should be divided. However, when a couple cannot come to a mutual agreement concerning the marital property, the property will need to be professionally valued in order to be divided fairly.

How will the courts determine the value of an investment property in a high asset divorce?

There are several ways for the courts to determine the value of investment properties, but the process is usually similar no matter what the property is. You may need to work with real estate appraisers, home renovators or even insurance adjusters who have the necessary experience assigning a fair value to a property.

Assessing homes and rental properties

One of the methods used to determine the value of a home by real estate appraisers is a Comparative Market Analysis. A Comparative Market Analysis is a report that informs homeowners of how much their home is worth. This report helps to show a homeowner how comparative their home is on the market. Some of the factors involved in a comparative market analysis are the value of comparable homes in the homeowner’s neighborhood that were recently sold or listed and some of the special features of a home-like an updated kitchen or an in-ground pool.

Some of the additional factors that the courts may take into consideration are the appreciation or depreciation of a home during the marriage and any home improvements that were made to the home during the marriage. The appreciation or depreciation of the home will definitely be taken into consideration if the house belonged to only one of the spouses before the marriage. In this scenario, the change of value in the home will be divided instead of the home’s entire value. The change in value will be determined by a real estate appraiser who will conduct a good faith estimate of the home’s value at both the beginning of the marriage and the current value.

Another factor that will be considered is any home improvements that the couple has made to the property during the course of their marriage. Spouses will want to keep track of any improvements made to the property that were paid with marital funds. The home improvements and the additional value will be considered in the division of marital assets, even if the house is not.

Assessing businesses and commercial properties

Commercial properties, like warehouses retail stores, may be different. This is because many business owners do not own the property; they rent it. If they do own the property, it will be assessed in much the same way that a home is assessed. The Comparative Market Analysis (also called a capitalization rate) determines how similar the property is in value to other properties.

The Motley Fool’s MillionAcres service lists and explains the following valuation methods for commercial properties:

  • Net operating income (NOI):The amount of income the asset brings in, after all operating expenses, including vacancy and loss, and before a mortgage is paid. This is the amount used to factor the property’s capitalization rate.
  • Cash flow:This is the net amount of money in your pocket after all expenses and any mortgages are paid.
  • Cash-on-cash return:This percentage is figured by dividing the amount of cash you put down on a property by the annual cash flow it produces. It is another measure of your return on investment.
  • Gross income:The total amount of money a property brings in before expenses.

They also point out that valuation can be determined on whether or not a person can secure financing for a property. If not, the property may be deemed less valuable.

When one or both of the spouses have started a business during the marriage, the ownership of the business may be considered marital property that has to be valued. To determine the value of the ownership interest, some of the factors that will be considered are the assets and debts of the business, as well as its reputation/brand recognition, location, and its income generation.

In regards to assets and debts, information such as equipment, inventory, and patents will be considered when determining the value. The state and the length of time that the business has been owned by either of the parties may also be used to determine whether the value of the business has increased since the marriage.

The Charlotte family law attorneys at Epperson Law Group, PLLC have the experience to represent you in your high asset divorce. Our unique skillset with this type of divorce gives you the knowledge and guidance you need to achieve your financial goals during your divorce. Let’s talk about your future. To reserve a consultation with one of our lawyers in Charlotte, Concord, Boone, and Weddington, please call 704-321-0031 or fill out our contact form.