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In most divorce cases people earn their income through an employer and in such cases income is easily determined by examining the W-2s.  It becomes more difficult when a person is self-employed, has a commission based income or earns their income through other alternative means.  One common alternative is accumulating and renting out single-family homes or condominiums.  This can create a two-pronged issue, the first being how should that person's income be determined in a divorce and what happens to the properties themselves.  This blog is written to generally address what will happen to those rental properties in a divorce in Michigan.  If you have questions regarding your own possible divorce or separation, please do not hesitate to contact us to schedule a consultation by clicking on this link or calling (248) 608-4123.

What Happens to My Rental Properties In A Divorce In Michigan?

Unfortunately (or fortunately depending on the situation), rental properties are typically considered marital property in Michigan and therefore are subject to an equitable division with your spouse in a divorce.

Typically this means that each property will have to be appraised to determine the value of each, that value should be reduced by any mortgage, HELOC or other loan associated with the property to determine the equity of the property.  If you are the spouse that has purchased and/or managed the properties and intend to keep the properties after the divorce, you should also obtain written estimates of any and all repairs that are needed for each property.  You can then argue that the equity should be further reduced due to the required repairs and this will reduce the amount that you will have to pay the other spouse.  Once you have determined the equity in all of the properties, those are added together and divided by two to determine how much you will have to pay your spouse to "buy-out" their equity in the rental properties.

Many times the rentals are titled in the name of a limited liability company (LLC) or other business entity but this does not matter when it comes to a divorce case, it will be considered marital property regardless of how it is titled.  If you owned any of the properties before you were married, then you should obtain an appraisal and determine the equity you had in the property on or close to the date you got married because you can deduct the premarital equity you had in the property.  In addition, if you inherited any of the rentals, you should determine the equity close to the date of the marriage because that can be deducted as well.

In many cases it can be difficult or impossible to come up with all of the necessary money to make the buy-out in one lump-sum, in those cases, most of the time we are able to workout a payment schedule with some nominal interest to be paid to the other spouse.  This is because it often makes far more sense for one spouse to keep the properties and continue to manage and earn income from the properties rather then just selling them or dividing them up between the spouses.  Finally, the buy-out will require the attorneys, mediator or judge to determine the appropriate reduced income to use as your income for determination of any child support or potential alimony in the divorce.

This blog was written to generally address how rental properties will be handled in a divorce in Michigan.  If you have questions or concerns about a potential divorce in your future, please contact us to schedule a consultation by clicking on this link or calling (248) 608-4123.