Divorce guidance (rental property income)

Divorce guidance (rental property income)

Involved In Real Estate · Media, PA · Member since 2010 · 24 posts · 14 votes
Hi All I am going through a divorce and need some expertise in terms of income determination for Alimony and Child Support. I live in State of PA. About my situation: I work full time as an employee and I collect a pay check (W2) which essentially pays our living expenses. My wife also works and also is an employee. We have 20 rental properties which a handful were pre-marital. Some of the cash flow does pay for some living expenses but not much. How does net income from rental properties get incorporated into Alimony and Child Support considering the following: Rental income Expenses (excluding depreciation) Depreciation Principle payment (the portion of the monthly mortgage payment) The issue I am having is I have a handful of properties on a 15 yr fixed amortization. How does the monthly mortgage payment and depreciation get handled? I would guess, depreciation gets re-incorporated but the principle does not since it's a monthly obligation that is truly not free money? Would it get handled the same way as dividend reinvestment? Should an average of 5 yrs be looked at since on a yearly basis property turnover changes? For example 2014 was a poor yr due to break downs, vacancy etc as 2016 was great since no major break downs and no vacancy 99% occupancy. How should cap ex and vacancy be argued? Is there any expenses that may be challenged (ex. Cell phone, home office or internet access)? Any help would be greatly appreciated!!! Kevin
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  • Investor · Pawleys Island, SC · Member since 2008 · 1k+ posts · 837 votes
    9y

    This is a question that should be addressed to your atturney.  Rules for what is included in income for child support determination may vary by state.

  • Involved In Real Estate · Media, PA · Member since 2010 · 24 posts · 14 votes
    9y
    Thanks Dave for your comment. Divorce Lawyers know a certain amount of business operation or business valuation but not enough that I would consider them as experts. Is there anyone who is knowledgeable with my questions in the original post?
  • Investor · Los Angeles, CA · Member since 2016 · 8 posts · 3 votes
    9y

    Rules do vary by state so I'm not sure how PA defines income for purposes of determining support, but in CA you would calculate each parties cash flow, so for rental properties you would start with net income and add back non-cash items such as depreciation and then exclude the principal mortgage payments to arrive at the actual cash flow rec'd from these properties.  

    Regarding your question about using an average - generally an average is used but this will depend and vary by the circumstances of each case

  • Investor · Los Angeles, CA · Member since 2016 · 8 posts · 3 votes
    9y

    Sorry I hit post a bit too soon.  I don't understand your question regarding capex/vacancies, and perquisities or personal expenses can be added back and included in cash flow.

  • Investor · Princeton, TX · Member since 2014 · 1k+ posts · 1k+ votes
    9y

    @Kevin Rowghani  You should expect your lawyer and your wife's lawyer to decide on a CPA and appraiser to act as experts.  If they cannot then you will probably both have experts.

    If you both or either decide to cause the most problems possible the houses might all end up being sold before the divorce is final.

    By the way, you have not included near enough facts to answer your questions.

  • Member since 2016 · 13k+ posts · 12k+ votes
    9y

    I would expect that liquidation may be the only option in a divorce unless you have the cash to buy her out.

  • Real Estate Agent · Virginia Beach, VA · Member since 2012 · 2k+ posts · 1k+ votes
    9y

    I cannot answer your questions, but I was a court reporter for years and had to sit through a lot of ugly divorces.  Even with customary rules on income and percentages for alimony and child support, having that type of income can lead to huge headaches so be careful how you proceed.  If you cannot amicably agree on income and valuations of the properties, you could be looking at the Court ordering appraisals and financial audits and by the time you're through, the lawyers and appraisers and CPAs will have made a fortune and you'll both likely still be upset at the court-ordered outcome.       

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