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Attorneys at Raleigh Divorce Law Firm

Will you have to divide passive income too?

On Behalf of | May 12, 2022 | Property Division |

Working day-to-day at a regular full-time job was the primary way families earned money for decades. As times change, so have the ways you can earn money and support your family.

In this day and age passive income options are becoming more popular. However, what could that mean for your divorce?

There are many sources of passive income nowadays

The opportunities and business of earning passive income have increased over the years. As the term suggests, these opportunities bring in money without very much active, day-to-day work. Work is often required to establish the source of income, as well as the occasional administrative duties to maintain it, but you will keep earning money off of the opportunity over time.

Some of the most common sources of passive income include:

  • Renting out a room or vacation home
  • Holding intellectual property rights and royalties
  • Maintaining stock holdings

Technology and social media have had a significant impact on these opportunities and the strategies for obtaining passive income. While these opportunities can be extremely lucrative for you and your family, it is important to be aware of the issues that could arise in a divorce.

Passive income is still income

Any money you earn is income. Your pay check from your job or small business is often not the only source. Money earned from a passive income opportunity still counts as income. If you earn passive income, there are two factors to address in these situations:

  1. Even if the source or opportunity itself – say, a real estate property – is separate property, the income earned from it will most likely have an impact on the financial issues in your separation and divorce.
  2. If spouses obtained the passive income opportunity together, or if marital assets were used to renovate or improve it during the marriage, then both the opportunity and income will be classified as marital property.

For example, you and your spouse may have purchased a house to rent out to tourists. You must address several issues regarding this property if you face a divorce, such as how to handle the property and how to divide the income you earned from it.

The source of the passive income can make this asset more challenging to manage and track than the income you earn from your full-time job. In many cases, it requires negotiation and careful consideration of the future, so you can preserve that source of income throughout the process of your divorce.