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What happens if you and your ex own a vacation rentals business?

High net-worth divorces often come with complexities. One example is when couples have joint assets such as a vacation home rentals business.

When the real estate market and divorce laws intersect in New York, unique challenges can arise.

Financial entanglements

About 291.5 million tourists traveled to New York state in 2022. Many of them stayed in second homes or investment properties that others rent out as a business. The valuation of this type of business can be complex. It considers factors such as property values, rental income and potential appreciation. Determining each spouse’s rightful share requires meticulous scrutiny and often involves the expertise of financial professionals.

Division of assets

In a divorce where spouses jointly run a vacation rental business, the division of assets can lead to contentious negotiations. The business itself, along with any associated properties, may be marital assets subject to equitable distribution. Disputes may arise over whether the business should be sold, continued jointly or divided in some other manner.

Tax implications

Issues such as capital gains taxes, depreciation recapture and transfer taxes need careful consideration during asset division. Each decision regarding the business and its assets can have long-term tax consequences for both parties.

Practical challenges

When divorcing spouses co-own properties used for vacation rentals, practical challenges emerge. Questions about property management, rental agreements and occupancy rights must be addressed to ensure smooth operation post-divorce. Disagreements over property use or management responsibilities can further complicate the divorce process.

Custody of business operations

If one spouse wants to keep control of the vacation rental business, custody of operations can be an issue. Negotiating terms for one spouse to buy out the other’s share or maintain a stake in the business while releasing operational control requires strategic planning. It also needs clear communication.

With proactive planning and a willingness to collaborate, divorcing couples can address these unique issues.

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