Rental Income In Colorado Divorce

There are many different kinds of income that may be relevant in divorce proceedings. Some income is easy to calculate, such as that received from an employer as shown on a W-2 form. Other income is not as straightforward. For example rental income is income for divorce income calculation purposes, however it may not be calculated the same as it is reported for income tax purposes under Colorado domestic relations law.

Rental income is a form of business income. It is reduced by ordinary and necessary expenses to produce the income. Common ordinary and necessary expenses to produce rental income are:

• Advertising
• Cleaning
• Insurance
• Property management fees
• Mortgage interest (but not principal)
• Repairs
• Utilities
• Depreciation
• Taxes

Depreciation represents the cost of a decreased value in an asset over time as it ages. An example of a difference in includable expenses between income tax law and Colorado divorce law is accelerated depreciation. It can be deducted as an expense under income tax law, however Colorado does not allow the deduction of accelerated depreciation as an ordinary and necessary expense for divorce purposes. Colorado domestic relations law does allow the deduction of ordinary depreciation. Some other states do not allow the deduction of ordinary depreciation for divorce support purposes in income calculation. Each state sets its own divorce laws.

Other questions can arise in divorce AKA dissolution, such as whether rent payments from a roommate should be considered additional income or simply be considered a reduction in living expenses for the landlord. Rent earned on a premarital rental property is considered to be marital income during a marriage.

Rental properties themselves may be separate or marital property. Marital property in general excludes:

• Property obtained before marriage
• Gifts to one spouse by a third party (as opposed to a gift to both parties)
• An inheritance
• Property as determined in a pre or postnuptial agreement
• Property acquired after a legal separation

The preceding types of property are considered to be separate property. However, an increase in value of separate property during marriage is marital property. In this scenario, the separate property owner keeps the property, however he or she must compensate the other spouse in some way for the spouse’s equity interest in any increase. A historical appraisal may need to be conducted to determine the value on the date of marriage in order to calculate the equity increase.

If the property is marital, then it must be valued to be divided. There are three options from lowest cost/least accurate to highest cost/most accurate and they are a free broker opinion, a paid comparative market analysis based on a visit to the home and an appraisal.

A knowledgeable and experienced attorney from a divorce and family law firm can guide you through Colorado Springs divorce and family law matters by negotiating, mediating and litigating. This allows you to focus on to a better future. Divorce and family law matters are difficult to navigate alone.

Sabra Janko from Janko Family Law Solutions is a knowledgeable and experienced attorney who protects your best interests and ensures that you are aware of your legal rights and obligations. Contact us at 719-344-5523 for a free 30-minute informational consultation or complete our online form.