All over the country, real estate has skyrocketed as more and more millennials pour into a market in which there is roughly the same number of homes. Developers of both residential and commercial properties are seeing their ventures blossom in both housing and rental markets. While some have noted that the spike in value is similar to the pre-crash numbers, lenders have not been anywhere near as cavalier about floating loans to high-risk borrowers. In other words, the real estate boom that we’re seeing right now is likely sustainable. There are simply more buyers and less inventory, which is driving up prices naturally. This means that real estate, as an investment, should grow in value in the coming years. If you are a real estate investor looking to divorce, you want to make sure you leave with as much real estate as possible. If you take other assets from the divorce, you might be harming yourself financially.
Real Estate Investments and Divorce
In a marriage in which there is no prenuptial agreement, Ohio law determines how assets are divided. The first question to be considered is: What constitutes marital property? Typically, marital property is any property that was acquired during the marriage. This can also include the value that has accrued on a parcel of real estate if it was developed during the divorce.
Given that these are often extremely complex situations that require protracted periods of discovery and appraisal, experienced legal counsel is necessary for those who want to protect their assets during the divorce process.
Understanding Equitable Distribution in Ohio
States take two different approaches to dividing property in a divorce. There are equitable distribution states (like Ohio) and community property states. In a community property state, couples split property 50/50 automatically. In an equitable distribution state, the property is divided “fairly.” While the court will assume that an equitable distribution is a 50/50 split, there may be a number of reasons why the court will favor one spouse over the other when dividing property.
These reasons can be as varied as spousal misconduct or a severe imbalance in the earning power of one spouse over another. Considerations such as spousal support and child support also play into how the property might be distributed.
A skilled upper-class divorce attorney who caters to high-asset clients understands how important your investments are to you. We can help protect your assets in the divorce and negotiate with your spouse to ensure your life’s work is not unfairly plundered.
How Real Estate is Divided in a Divorce
In order to understand how to protect real estate from divorce, you need to first understand how it is divided. The first step in the process is appraising the real estate. Real estate typically lends itself rather well to the appraisal process. The value of the real estate is only considered up to the date of separation. The spouse who has primary control of the real estate would still own their interest and the other spouse would be entitled to either their stake in the venture or the value of the real estate at the time of separation.
In addition, the amount of equity (that is marital property) is considered against the outstanding balance of the loan. In other words, what ends up getting appraised is equity. So, equity is what is considered marital property.
There are a couple of different ways of handling this issue. One spouse can buy out the other spouse’s share of the equity or the spouse can forfeit that property entirely as a bargaining chip for some other property. In cases in which a property has “negative equity”, a spouse may also absorb the costs of that property and use that as a bargaining chip in order to secure other properties. Debt accrued during the marriage is also considered “property of the marriage”.
Marital and Non-Marital Equity
As we said before, property acquired before the marriage belongs to you alone while property acquired during the marriage belongs to both you and your spouse and is considered “marital property”. It is this “marital property” that the court has a right to equitably distribute. It stands to reason, then, that there will be situations in which one spouse owned a certain amount of equity before nuptials and that property or properties accrued equity during the marriage.
In this case, the equity that you owned before the marriage is still yours while the equity acquired during the marriage is what can be distributed. It can be difficult to physically divide tracts of land or buildings, so sometimes property must be sold before it can be divided. If the real estate is especially desirable or rare, then you might want to avoid a sale. Meet with an attorney to review what is the best option for dividing the real estate.
How to Protect Real Estate from Divorce
If a prenuptial agreement is a foregone conclusion, then you need to consider your options carefully. There are a number of ways to hang on to your real estate investments but you will need to be willing to part with at least half of the equity in the form of money or other assets.
For example, your real estate investments might be worth $1,000,000. Your other marital assets could also be worth $1,000,000. In this situation, it might make sense for you to keep all real estate and your spouse to take the remaining assets (such as retirement accounts, stocks, bonds, etc.)
If you are also a land developer in addition to an owner, then holding onto the real estate could be key. You have not fully realized the value of the property, so selling it prematurely could cost you money. In this case, you might be willing to actually buy out some of your spouse’s equity in the real estate if there are not enough other offsetting marital assets.
High-asset divorces are often mediated since divorces that go through the courts are a matter of public record. Having an accurate appraisal of the value of your properties will be the first step and a willingness to take on the negative equity or debt accrued during the marriage can also make a difference.
Additionally, there may be room to bargain with alimony or spousal support payments. You can logistically purchase the equity in your business ventures in this manner and so long as both parties sign off on the agreement, you will be able to protect your real estate investments. You can also accomplish the same thing in a lump sum payment that successfully negotiates your way out of losing control of your property. There are many moving pieces in a divorce, and your attorney can help you understand your best options.