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Short-term rental properties represent a significant source of income for many families. The largest online booking system, Airbnb, has over 7 million active listings for nearly 4 million hosts around the world. American Airbnb hosts earn an average of $14,000 annually from their properties.
Courts face complex issues when dealing with rental properties in a divorce. How the judge will divide the property depends on many factors, including when the property was acquired, how it was owned, and who maintained it.
Separate and Marital Property in New York
All property, including revenue-generating property, can fall under New York’s divorce laws. The state uses an equitable distribution system for dividing marital property. Under this system, the court divides the couple’s property fairly rather than equally.
When dividing property, New York judges categorize property as separate property or marital property. Separate property usually includes the following:
- Property acquired before marriage
- Gifts received before or during the marriage
- Inheritances received before or during the marriage
- Personal injury settlements
- Property acquired using separate property
- Property designated as separate in a prenuptial agreement
Marital property includes everything else, including property acquired during the marriage.
This rule applies regardless of how the property ownership is recorded on the deed. For example, a condo is not automatically separate property if it only lists one spouse as owner. Instead, a court will analyze how the couple acquired it to determine whether it qualifies as separate property.
One additional rule relevant to rental properties involves property maintenance. If a couple spends marital resources on the repair and upkeep of separate property, it may become marital property.
Suppose that a spouse inherited a condo. This separate property might become marital property when they spend wages earned during the marriage to install new flooring.
Bear in mind that these rules still apply if the couple has a business that owns and rents rental properties. The court will classify ownership of the rental property business as separate or marital property and divide the business assets accordingly.
Dividing Rental Property in a Divorce
Separate property, as the name suggests, belongs to one spouse and will not get divided in a divorce. However, a court divides all marital property, including rental properties, in a divorce.
Dividing the property does not completely resolve the issue. Rental properties also have income. If the property is marital, the income also belongs to the couple and must be divided by the court.
While the divorce is pending, it may become necessary to share the income or account for how the income is being spent.
The court and the couple have many options when dividing a rental property owned as marital property. They can sell it and split the sales proceeds. They can also agree to own it together as co-owners after the divorce and share the future revenue.
The couple could even transfer it into one spouse’s name and divide the rental income or other assets to buy out the non-owner spouse’s share of the property and future rental income.
If the couple held the rental property in a business, the court will deal with the business ownership interests. Thus, a family-owned business might be co-owned equally by the ex-spouses after the divorce. Or one spouse might need to buy out the other spouse’s ownership share of the business.
This type of transaction could require an accounting analysis to set the buyout price because it will include the future revenue of the property.
Learn More About Rental Properties in a Divorce From Our Attorneys
A rental property, or several rental properties, might represent a significant revenue-generating asset for a couple both during and after a marriage. Contact Aiello & DiFalco, a family law firm in Garden City, New York, to discuss your rental properties and the strategies we can employ to fight for a fair division of these assets.