How Are Rental Properties Divided In an Arizona Divorce?

Arizona is a community property state, meaning most assets acquired during the marriage must be divided equally during a divorce. Couples in Chandler often turn to a Chandler family law attorney or Chandler divorce lawyer to navigate complex assets, especially rental properties, because these properties require a more detailed evaluation than standard marital assets.

Arizona divorce law requires community property to be divided as closely to 50/50 as possible. While dividing bank accounts or personal property is usually straightforward, rental properties introduce issues like commingling, valuation, and equity disputes.

Understanding Separate vs. Community Property in an Arizona Divorce

Under A.R.S. § 25-211, property is categorized as either separate or community:

• Separate Property:
  Assets owned by one spouse before the marriage, along with gifts and inheritances received by that spouse alone.
• Community Property:
  All income, assets, real estate, and debts acquired during the marriage by either spouse.

A rental property that was originally separate can become commingled.

Example:

If one spouse owned a rental property before the marriage but the other spouse contributed money, labor, or management efforts toward the property, that spouse may have a claim to a portion of the increased value or equity.

How Rental Properties Are Divided in an Arizona Divorce

Rental properties, just like vacation homes, investment properties, or secondary homes, require careful analysis during a divorce. Division typically depends on:

• When the property was acquired
• How it was titled
• Whether marital funds were used for improvements, mortgage payments, repairs, or management
• The property’s current market value

There are four common methods for dividing rental properties in an Arizona divorce:

1. Sell the Property and Divide the Proceeds

The spouses may agree (or the court may order) that the rental property be sold.

• If acquired during the marriage: proceeds are split 50/50.
• If one spouse owned it before marriage: the increase in value may be split.

2. One Spouse Buys Out the Other

A buyout allows one spouse to keep the rental property while paying the other spouse their share of the equity.

3. Exchange Properties to Equalize the Division

If spouses own multiple properties, they may exchange them so each receives property of equivalent value.

4. Continue Co-Owning the Property

Some couples choose to retain joint ownership after divorce. This requires a clear agreement outlining:

• How income is split
• Who manages the property
• Who pays for repairs, taxes, and maintenance

If tenants have active leases, the spouses may need to temporarily continue co-owning the property until the leases end.

What to Consider When Dividing Rental Properties During a Divorce

Before determining the best way to divide rental properties during an Arizona divorce, spouses should consider the following important points and discuss them with their lawyers:

• The property’s market value
• How the property is titled
• Whether one spouse wishes to keep the property
• If marital funds were used to improve and maintain the property
• Tax implications
• Whether or not there is still a mortgage on the property
• If one spouse wishes to move into the rental property after the divorce

Because real estate division can affect long-term finances, tax burdens, and future investment opportunities, both spouses should consult a family law attorney from Wilson-Goodman Law Group, PLLC experienced in Arizona property division before deciding on the right strategy.