How is Income From Separate Property Handled in a North Carolina Divorce

One of the most attractive things about owning property in North Carolina is the fact that it can provide you with income. Rental income is one of the oldest and most reliable ways to make money, and it is relatively passive in nature. In addition, land can also provide you with income if you grow crops on it. You may have owned this property prior to your marriage, and you may have heard that all property owned prior to the marriage is “separate.” This means you will not have to divide it with your spouse via equitable distribution. But what about the income earned from this property during the marriage?

The answer is slightly complex, and it is probably a good idea to ask an experienced divorce attorney in North Carolina if you want a clear explanation. Not only can our legal professionals explain these matters in clear, concise terms, but we can also guide you forward. In the case of high-net-worth spouses, there may be numerous rental properties at stake, and the amount of monthly income from these properties can be tremendous. This means that although this issue is slightly complex, it is anything but trivial.

The Uniform Marriage and Divorce Act

The Uniform Marriage and Divorce Act classified all income from separate property as marital property. That means that in theory, all of the income provided to you from a piece of separate property must be divided with your spouse via equitable distribution.

Income vs. Appreciation

In practice, the UMDA’s general guidelines are not necessarily followed by states such as North Carolina. Although the UMDA classified all income from separate properties as marital property (regardless of the cause), courts recognize a difference between “income” and “appreciation.” Income includes things like rental payments, while appreciation is the rise in the value of an asset over time. If this rise in value occurs passively through market forces alone, it is generally considered separate property. However, if the rise in value is due to marital efforts, it may be considered marital property. For example, you and your spouse might have renovated a property together to increase its value.

Income is more complex, and each state has a slightly different way of dealing with this. In many states, income from separate property is treated in exactly the same way as income from any other source. The theory is that the spouse who received this income had an opportunity to share it with their partner, and so it is classified as marital property. Again, the income from a separate rental property may be classified as marital property if both spouses worked as a team to operate the rental.

Income From a Rental LLC

In some cases, spouses may have established real estate companies to manage their rental properties. In this situation, the income from a rental property may have gone directly to the LLC. Interestingly, this type of income may be considered separate, as it was technically handled by a third party. This is definitely something for spouses to consider if they are concerned about splitting rental income with their spouses in future divorces.

What if the Rental is Marital Property?

If the rental property is determined to be a marital asset, you have a few options. First of all, you can simply choose to keep everything the same and divide all future income from the rental property in the future. This will require both spouses to work together while managing the rental property. Because many spouses want nothing to do with each other after their separation, this situation may not be feasible. In this case, you have two options: You can either sell the property and divide the proceeds, or you can “trade” the property for something else. For example, one spouse might agree to let the other keep the rental property in exchange for 100% ownership of the family home.

Enlist the Help of a Qualified Attorney Today

If you have been searching the North Carolina area for a qualified, experienced divorce attorney, look no further than Arnold & Smith, PLLC. We have helped many people deal with their divorces in an efficient manner, and we are familiar with the various possibilities of property division in the Tar Heel State. Rental income can be extremely valuable, whether you are a high-net-worth individual or you are simply renting out your basement. If you are entitled to this type of income, we can help you fight for access. Reach out and book your consultation today.