Let’s talk about a common question I get from my clients: In Washington state, who gets to keep our rental house in our divorce?

The information provided below will be discussed from the perspective of going to court and having a Judge make decisions on your property, however don’t forget you can always reach an agreement with your spouse instead of going to court. In order to answer the question about who will get the rental house, we need to back up and talk about the big picture first. When dividing up property in a Washington divorce, the court will essentially start with an initial two-layer analysis on all of your assets and debts. Let’s look at these first two steps in the analysis and then run through some scenarios regarding the rental. 

First layer of analysis:

The court will need to determine whether the property is considered “community property” or “separate property”. [1]  The court will look at when the property was initially acquired to make this determination. [2]

“Community Property” in Washington

Generally, community property is everything you or your spouse purchased or acquired during the marriage. Each spouse generally has an equal interest in whatever was acquired during that time period (it doesn’t matter whose name is on the property or who purchased it). There are some limited exceptions to the community property designation even if acquired during the marriage, so please make sure to consult with an attorney if you think you have an exception (such as inheritance, separate/specific gift, personal injury settlement, etc.), if you have substantial or complex assets, or if you have any other questions regarding your specific situation. 

“Separate Property” in Washington

Generally, separate property is everything that you or your spouse acquired before the marriage or after the date of separation. The law generally says that neither spouse has an interest in the other party’s separate property. Most of the time, each spouse just keeps their own separate property. Although the court does have the power to divide separate property and provide some to the other spouse – practically, that is uncommon. Note: As discussed, if you purchased a house during your marriage, then it will be considered community property under Washington law. However, you may be able to obtain separate property during marriage if you can show by clear and convincing evidence that the property was acquired with separate funds. [3]  It should also be noted that there are instances where separate property can become converted to community property.  Additionally, if you and your spouse lived together prior to marriage, then there is a good chance that you have been acquiring community property from the time that you moved into together under the legal concept of a Committed Intimate Relationship.

To recap on this first step of analysis: Generally, a court will try to divide all community property 50/50 and have each party keep their own separate property, but don’t forget there are potential exceptions. The court can/does deviate from that sort of general division of assets/debts if needed to reach a fair outcome. 

Second layer of analysis:

Unfortunately, dividing up property isn’t quite as straightforward as determining what is community vs. what is separate. After we determine whether we are categorizing the property as community or separate, the court considers numerous additional factors to ultimately determine who gets what. In the end, the court has the discretion to reach a “fair and equitable” division of property/debts after considering the totality of your circumstances. Those additional factors [4]  for consideration are:

1. The nature and extent of the community property;
2. The nature and extent of the separate property;
3. How long you have been married;
4. Each spouse’s financial situation at the time the property division will take place; and
5. If the spouse who has custody of the children should get the family home (if applicable).

In the end, the court will look at whether the property is community or separate and then take into account the above-stated key factors. When you own houses, including rentals, those assets will need an up-to-date value (this is commonly done through a professional real property appraiser). My recommendation at this point is to ensure you are creating an asset and debt spreadsheet which identifies everything you/your spouse own or owe, indicates the value, and when/where that value came from. In order to figure out who gets the rental house, you must first have the above-stated understanding regarding dividing all your property and debt. Let’s get to specifics regarding your rental property.  

Strategy tip with a rental property:

Rental properties can be lucrative for your monthly cash flow moving forward after a divorce. That future and current cash flow should be taken into consideration when arguing about an overall fair outcome for your divorce.

Here are a couple of common example scenarios when spouses own rental homes:

Scenario #1:

You own a home prior to living with your spouse and prior to marriage. Prior to marriage, your spouse moves into the house with you; you both live there for three additional years and get married during that same time. Once married, you and your spouse purchase another home and move into it. You then turn the original house into a rental. You separate from your spouse two years later. Who gets the rental and who gets the home you purchased during the marriage? Under these facts, the rental would be considered your separate property, and the home purchased during the marriage would be community property. A typical outcome in a situation like this would be you receive 100% of your home acquired prior to marriage, and you/your spouse split the equity of the house you purchased during the marriage 50/50 (you either sell the home and split the proceeds, or one party keeps the house and cashes the other spouse out of their portion of the equity).

Scenario #2:

You and your spouse got married, and subsequently you bought a house. At some point during the marriage, you ended up turning that house into a rental, and you ran point on managing the rental during marriage. You and your spouse also bought another house during the marriage and made that your primary residence. The court would consider both those houses to be community property, and you each have an equal interest in them if you separated. Now, let’s say you and your spouse end up separating, and you now find yourself in the middle of a divorce that is continuing to get dragged out. During the pendency of the divorce, you have been continuing to manage the rental after separation, and you have been keeping all the profit but also making sure the property stays maintained. Each month, there is a small profit on average from the rental. You will need to make sure that you are accounting for the rental income and expenses each month during the pendency of the divorce because the net rental proceeds will be considered community property. [5]  It is advisable to save all net rental income during a divorce to ensure it is available if you are required to pay your spouse half. Given that both properties are considered community property you would each have an equal interest in them/the equity. In a scenario like this, it is most common for each spouse to receive one of the properties in the divorce. Additionally, if one of the properties had a lot more equity than the other, then a payment to offset the difference in value would typically be paid by the spouse receiving the more valuable property.

I am highly recommending that you speak with a family law attorney in Vancouver, Washington, and have them review all the property and debt circumstances at play in your divorce matter. And they can provide you with expert advice for negotiations or court. Real estate can often be a couple’s largest asset(s), and how they are divided during a divorce will substantially change each party’s cash flow, lifestyle, and retirement planning. It is very important to ensure that you are talking to a lawyer in order to ensure you are taking into account all asset and debt considerations/exceptions. It is important to be thinking about how the division of your property (including important income-generating ones like rentals) is going to affect you during different time periods including now, 5 years from now and beyond. If you need more help with strategizing about your rental property or other real estate, I would be happy to chat. You can contact attorney Amber Rushbanks at arushbanks@navigatelawgroup.com or 360-216-1098.

1. [1]. In re Marriage of Gillespie, 89 Wn. App. 390, 399, 948 P.2d 1338 (1997). 
2. [2]. In re Marriage of Shannon, 55 Wn. App. 137, 140, 777 P.2d 8 (1989).
   
3. [3]. See RCW 26.16.030; In re Marriage of Kile, 186 Wn. App. 864, 347 P.3d 894 (2015); In re Marriage of Schwarz, 192 Wn. App. 180, 189, 368 P.3d 173 (2016).
   
4. [4]. RCW 26.09.080
5. [5]. See In re Marriage of Thomas, 63 Wn. App. 658, 821 P.2d 1227 (1991).