Rental Property Split / Owned before Marriage

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talerco

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Jurisdiction
Colorado
For rough numbers...
Sam Bought house in 1995 for 150,000.
Sam Married Joan in 2000. Value of house at that time is $175,000.
They both lived in house a few years until buying another and renting this one. Not sure this matters.
Current value of house is $450,000. Sam wants to keep it.
Current mortgage of $100,000 = Equity $350,000.

OK -
1. Do they split the current equity meaning $175,000 each? Meaning he would pay her that much.
OR -
2. As above but he gets $25,000 for previous ownership so pays her $150,000.
OR -
3. Do they split the increase in value during the marriage? This would be $275,000 total or $137,500 each. Meaning he would pay her that much.
OR???

Actually I was hoping that when I wrote it out it would make sense to me one way or the other - no such luck.
Appreciate guidance. Thanks!
 
talerco said:
For rough numbers...
Sam Bought house in 1995 for 150,000.
Sam Married Joan in 2000. Value of house at that time is $175,000.
They both lived in house a few years until buying another and renting this one. Not sure this matters.
Current value of house is $450,000. Sam wants to keep it.
Current mortgage of $100,000 = Equity $350,000.

OK -
1. Do they split the current equity meaning $175,000 each? Meaning he would pay her that much.
OR -
2. As above but he gets $25,000 for previous ownership so pays her $150,000.
OR -
3. Do they split the increase in value during the marriage? This would be $275,000 total or $137,500 each. Meaning he would pay her that much.
OR???

Actually I was hoping that when I wrote it out it would make sense to me one way or the other - no such luck.
Appreciate guidance. Thanks!
Click to expand...
Who are you in this situation? Both Sam and Joan should consult with their respective divorce attorneys.
 
All the details of the couples' finances during the marriage will matter. Colorado is an equitable division state. This means that the court divides the property based on equity — fairness — and that does not always mean a 50-50 split of the marital assets. That said, the starting point here would be that the property was separate property coming into the marriage in 2000. The home was worth $175,000 at the time but also likely had a mortgage on it, too, I'm guessing. That mortgage matters because to the extent that it gets paid with marital assets that may convert some of that $175,000 value at the time of marriage to marital property. Also the increase in value over the course of the marriage would also generally be marital property, too. While often marital property is split 50% each for a couple married 10+ years in Colorado, the mix of other assets and how they are allocated is going to matter too. Sam and Joan will want to each see their own separate attorneys, lay out all the financial details for the lawyer, and get advice on what kind of division of property they might expect and what division they each ought to propose. If their lawyer is not also a tax expert (and most family law attorneys are not) then they also should see a tax lawyer or other tax professional about what kind of split to take because the tax law will have a big impact on what you end up with out of this. What looks like a good split before taking into account taxes may well be bad for one of the spouses when taxes are considered.
 
talerco said:
Do they split the current equity meaning $175,000 each? Meaning he would pay her that much.
Click to expand...

The phrasing of this question is odd. "Do they"?

Why would they do anything? I guess we're supposed to infer, even though you said nothing about it, that Sam and Joan are divorcing. If so, since the overwhelming majority of divorces are resolved by settlement, what they will do likely will depend on what they mutually agree to when they enter into a marital settlement agreement.

If your intent was to ask what the likely result would be if they don't settle and the case goes to trial, it is impossible to answer that intelligently because the answer depends on their overall asset and debt situation (as well as many other facts we don't know). "Tax Counsel" explained this in a bit of detail in his response.

You seem to be assuming that Joan will be entitled to payment for some of the increase in equity during the marriage, but that's not a foregone conclusion given that the house appears not to be a marital asset.
 
Tax Counsel said:
All the details of the couples' finances during the marriage will matter. Colorado is an equitable division state. This means that the court divides the property based on equity — fairness — and that does not always mean a 50-50 split of the marital assets. That said, the starting point here would be that the property was separate property coming into the marriage in 2000. The home was worth $175,000 at the time but also likely had a mortgage on it, too, I'm guessing. That mortgage matters because to the extent that it gets paid with marital assets that may convert some of that $175,000 value at the time of marriage to marital property. Also the increase in value over the course of the marriage would also generally be marital property, too. While often marital property is split 50% each for a couple married 10+ years in Colorado, the mix of other assets and how they are allocated is going to matter too. Sam and Joan will want to each see their own separate attorneys, lay out all the financial details for the lawyer, and get advice on what kind of division of property they might expect and what division they each ought to propose. If their lawyer is not also a tax expert (and most family law attorneys are not) then they also should see a tax lawyer or other tax professional about what kind of split to take because the tax law will have a big impact on what you end up with out of this. What looks like a good split before taking into account taxes may well be bad for one of the spouses when taxes are considered.
Click to expand...
Thank you very much. Useful information.
 
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