Beyond the Family Home: Why Short-Term Rentals Complicate Divorce Cases

For many divorcing couples, the marital estate now includes more than the family residence or traditional long-term rental. Increasingly, it includes short-term rentals (STRs) such as Airbnbs or Vrbo properties. While these properties may seem similar to other real estate assets, they introduce a host of unique complications that family law attorneys must address.

On the surface, dividing an STR may appear as simple as ordering an appraisal and assigning equity. In practice, however, STRs function as hybrid assets—part real estate, part business—and they require a far more nuanced approach.

STRs Operate Like Businesses

Unlike a traditional residence, STRs are rarely passive investments. They often:

• Generate recurring income through nightly or weekly bookings.
• Rely on customer service, guest reviews, and ratings to maintain value.
• Require active management, from marketing to housekeeping to local compliance.

In essence, an STR behaves more like a small business than a home. For this reason, attorneys must avoid the common pitfall of treating the asset as “just another property.” Its true value is tied not only to the land and structure but also to its income streams and reputation.

Key Issues Attorneys Must Address

1. Valuation Requires More Than Market Comparisons (If One Party Is Keeping It)

When one spouse intends to keep the STR, valuation becomes more complex than a typical home. Attorneys should consider:

• Fair Market Value (FMV): Based on recent sales of similar properties.
• Income Approach: Net operating income, factoring in occupancy and expenses.
• Hybrid Methods: A blend of FMV and income multipliers for accuracy.

If one spouse has actively managed the property and built its reputation, that “sweat equity” adds value—similar to goodwill in a business.

(If the STR is being sold, the analysis shifts to fair market value and division of net proceeds, with fewer complications tied to goodwill or income potential.)

2. Future Bookings and Deposits

An often-overlooked issue involves existing reservations. Attorneys should clarify:

• Who receives the income from bookings scheduled after separation?
• Who is responsible if a reservation cannot be honored?
• How should prepaid deposits or cancellation fees be divided?

Failure to address these questions may leave former spouses in conflict long after judgment.

3. Regulatory and Licensing Challenges

Many cities have tightened regulations on STRs, requiring permits, capping the number of licenses, or restricting transfers. Attorneys should confirm:

• Whether the property has a valid permit.
• Whether the permit is tied to the property or to the individual spouse.
• Whether the operating spouse can legally continue after divorce.

A permit that cannot be transferred could significantly reduce the property’s value or even prevent its future use as an STR.

4. Tax Implications

Tax treatment adds another layer of complexity:

• Self-Employment Taxes: STR income is often considered business income.
• Depreciation & Recapture: Transfers or sales may trigger tax consequences.
• Multi-State Compliance: If the STR is located in a different state, varying tax rules may apply.

Engaging a CPA familiar with STRs can help prevent unpleasant surprises at tax time.

5. Out-of-State Properties

STRs in another state bring additional challenges, including differing laws, taxes, and logistical hurdles in managing or selling the property. In these cases, attorneys may need to coordinate with local counsel or real estate experts to ensure proper handling.

Why Collaboration Matters

The complexities of STRs highlight why collaboration is essential. Attorneys are experts in the law, but divorce cases involving STRs often require specialized input from other professionals:

• Certified Divorce Real Estate Experts (CDREs): To provide valuation insight, assess operational realities, and guide settlement structure.
• CPAs and Tax Advisors: To navigate complex tax treatment.
• Local Counsel or Real Estate Professionals: For properties located outside the jurisdiction.

Working with a CDRE ensures that all aspects—real estate, business, financial, and operational—are considered before finalizing the settlement.

The Takeaway for Family Law Attorneys

Short-term rentals are more than real estate—they are business assets with income streams, regulations, and tax implications.

Treating them like a family home risks leaving critical issues unresolved. By working with a Certified Divorce Real Estate Expert (CDRE) and other professionals, attorneys can safeguard their clients’ interests, avoid costly disputes, and ensure settlements that hold up long after judgment.