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How are real estate holdings handled in divorce?

For many couples, real estate holdings are some of the most valuable assets owned. Valuing and dividing real estate in a divorce can be a complicated process.

Especially if you gain a portion of your income from commercial real estate investments, your future financial health may depend on proper assessment and division of this real estate.

How do the courts divide real estate?

Because Texas is a community property state, spouses generally own property equally if it was acquired during their marriage or purchased with marital funds. This includes real estate holdings, even if only one person’s name is on the paperwork.

During property division, couples generally have three options when distributing real estate holdings:

  • Remaining joint owners of the property
  • Selling the property
  • Refinancing the property so that one spouse becomes the sole owner

Why is thorough valuation important?

It is important to consider the value of the property and the current market, especially if one of you intends to keep a portion of the real estate holdings. Some methods of valuing commercial real estate include:

  • Cost — This approach uses the cost of replacing the current structure to establish its value.
  • Sales comparison — This approach compares the property to similar properties in the same market to establish its probable sale price. This method can be highly variable because of market fluctuations.
  • Income capitalization — This approach projects the future income that may be received from the property and subtracts the likely costs associated with maintenance.
  • Capital asset pricing—This approach uses potential income compared to other risk-free investments.

It is also important to consider how changes to the market since the spring of 2020 have impacted a property’s value. With commercial real estate activity down 48% globally, couples may find that their property’s value has decreased.

With many methods of valuation to consider and a challenging market for commercial real estate, divorcing people may want to enlist an experienced appraiser to establish their property’s value. They may also want to speak to an attorney with experience navigating complex property division issues in high asset divorce.

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