How to Handle Real Estate Investments in a Divorce

Many couples look for ways to invest their excess income intelligently during their marriages. After all, diversification is key to withstanding economic ups and downs and market fluctuations. Many people in Colorado choose to invest in real estate. This often proves to be a wise decision, especially considering the influx of new residents to the state in recent years.

When you start considering divorce, those real estate investments can suddenly become a major source of contention. After all, each property probably has significant value. Whether you own them outright or have a mortgage on these properties, both you and your spouse likely want to retain some of your ownership interest.

Understanding how Colorado will view these properties can help you decide how to approach the asset division process when it comes to real estate that is not your primary residence.

The equitable distribution standard applies to investment properties

When you divorce, the courts in Colorado do their best to split your possessions in a fair and equitable manner. The same approach applies to marital debts. When considering your investment properties, the courts will look at both the amount of equity you have in the properties and the debt you have financed to purchase them.

The courts wants to split your possessions and debts in a manner that is fair to everyone involved. They will consider many factors from your marriage, but not marital misconduct. While they may not split each property 50/50, you can anticipate that, in most cases, the division process will be relatively equal. How that affects your real estate investments will depend on how many properties you own and how much equity versus debt you have in each individual property.

The courts may assign the properties to the spouses or liquidate them

Every divorce, just like every marriage, is inherently unique. It is impossible to predict exactly how the courts will handle asset division in your divorce unless you have an ironclad prenuptial agreement. Barring that, you must either come to terms with your spouse prior to filing divorce or ask the court to decide how to split your assets.

The courts will typically handle investment properties like any other substantial asset. They will attempt to assign a fair market value to the property and look at both of the debt and equity attached to each individual investment property.

In some cases, if your ownership interest is still relatively small, the courts may order you to sell the property and split the proceeds. In other cases, the courts may allocate some properties to one spouse and some to the other. If only one spouse hopes to retain those investment properties, the courts may order that person to refinance the homes and provide the other spouse with a portion of the established equity in the homes.

Knowing the value of the homes and having accurate financial records related to their financing is critical to a fair and reasonable outcome when dividing investment real estate property in a Colorado divorce.