Divorce and Jointly Owned Investment Properties: What You Need to Know

Investment properties have become a significant financial asset for many couples in England and Wales. Where one or both parties own rental property, either jointly or individually, it adds a layer of complexity to divorce financial proceedings that needs careful handling.

Are investment properties matrimonial assets

Whether an investment property is treated as a matrimonial asset depends on when it was acquired, how it was funded, and how it has been treated throughout the marriage. Property bought jointly during the marriage from shared funds is almost always treated as a matrimonial asset. Property bought by one party before the marriage, or funded entirely from pre-marital savings or an inheritance, may have a stronger argument for being treated differently, though this is not guaranteed, particularly in a longer marriage.

As with all assets in financial remedy proceedings, the court looks at the full picture rather than applying rigid rules about ownership.

How investment properties are valued

Each investment property will need to be valued as part of the financial disclosure process. This typically means obtaining a current market valuation, from which the outstanding mortgage or any other secured lending is deducted to give the net equity figure.

Where there are multiple properties, the valuation process takes more time and can add to the complexity of the overall financial picture. In some cases, there may be a dispute about the current value of a property, particularly if the market has been volatile or if the properties are in locations where comparable evidence is limited.

Our family law barristers can advise on how investment properties are likely to be treated in your case.

Rental income and how it is assessed

Investment properties generate income, and that income forms part of the financial picture. Both the capital value of the properties and the ongoing rental income they produce need to be disclosed and considered. Rental income is relevant to the assessment of each party's financial resources and may affect decisions about maintenance.

Tax liabilities associated with rental income are also relevant. Both parties should disclose any outstanding tax positions related to their properties, as these form part of the true financial picture.

Capital gains tax on sale

Unlike a primary residence, investment properties do not benefit from principal private residence relief from capital gains tax. This means that if a property is sold as part of a financial settlement, or transferred from one party to the other, there may be a capital gains tax liability to consider.

Failing to account for tax liabilities when calculating the net value of investment properties can result in a settlement that looks equal on paper but is not equal in practice. This is an area where specialist advice is particularly valuable.

Options for dealing with investment properties

There are several ways in which investment properties can be dealt with as part of a financial settlement. They can be sold and the proceeds divided. One party can buy out the other's interest. The properties can be allocated to one party in lieu of other assets. Or in some cases, a deferred arrangement can be reached, particularly where sale would trigger a large tax liability at the current time.

The right approach depends on the overall financial picture, the tax position, the income needs of both parties, and what both parties actually want to achieve. A barrister can help you understand the options and their relative merits before any decisions are made.

Our guide to the costs involved in direct access barrister advice explains how you can access specialist advice on a cost-effective basis.

To discuss your next steps with a specialist barrister, reach out to our team today.