blog home Property Division Dividing Rental Property in an Illinois High-Asset Divorce: What You Need to Know

Dividing Rental Property in an Illinois High-Asset Divorce: What You Need to Know

By Nottage and Ward on October 30, 2025

Dividing rental property is one of the most difficult issues in a high-asset divorce. From single-family homes to multi-unit buildings and commercial spaces, income-generating real estate can seriously complicate property division.

For many couples, real estate holdings are an important investment strategy and a key source of wealth. Understanding how Illinois courts approach the classification, valuation, and distribution of these properties is essential to protecting your financial interests.

At Nottage and Ward, LLP, we help clients navigate the intricate process of dividing rental property in Illinois divorce proceedings.

Determining Whether the Property Is Marital or Non-Marital

The first legal question in any property division analysis is whether the asset is marital or non-marital.

Under Illinois law, marital property includes any assets acquired by either spouse during the marriage, regardless of who holds the title. That means a rental property purchased by one spouse during the marriage, even if held in their name alone, is likely considered marital property.

Because Illinois is an equitable distribution state, the court will divide marital property in a way that is deemed to be “fair,” but it’s not a 50/50 split like you will find I many other states.

Non-marital property includes assets that:

• Were acquired before the marriage
• Were received by one spouse as a gift or inheritance
• Are explicitly excluded by a prenuptial or postnuptial agreement
• Can be traced to non-marital funds and kept separate throughout the marriage

It’s important to remember that non-marital property can become marital if it’s commingled with marital funds or both spouses contribute to its maintenance, renovation, or management.

Passive vs. Active Income

When dealing with income generating property in an Illinois divorce, it matters whether it’s passive or active income. Passive income includes rents or investment gains that accumulate without active involvement from either spouse. Courts generally treat this as income derived from property ownership.

Active income is money earned through direct participation in work or business activities. If one or both spouses actively manage the property by handling tenants, making repairs, marketing vacancies, and overseeing renovations, that effort can affect how the property and income are classified.

In high-asset divorces, it’s common for one spouse to take on a more active management role. That can influence how much of the property’s value or income the other spouse is entitled to.

Courts may consider:

• Whether both spouses contributed to the success of the property
• Whether the rental income supported the family during the marriage
• The role of each spouse in managing the asset

The Importance of Accurate Property Valuations

In high-asset divorces, getting an accurate valuation generally takes more than just tax assessments or informal estimates. Courts often require a formal property appraisal during divorce proceedings, especially for income-producing real estate or properties with complex ownership structures.

Appraisal methods may include:

• Market comparison approach: Value is based on recent sales of comparable properties
• Income approach: Used for rental properties, value is calculated based on net income and capitalization rates
• Cost approach: Considers what it would cost to replace the property

At Nottage and Ward, LLP, we work with real estate appraisers who understand the nuances of investment property valuation. In many cases, competing appraisals are submitted by both parties, and the court weighs the credibility of each.

Considering Ownership Structure

For affluent clients, untangling real estate ownership often requires collaboration between legal counsel, financial advisors, and business valuation experts. Ownership structure matters, especially when a rental property is held in an LLC, partnership, or real estate trust.

In these cases, courts look beyond the name on the title and examine the true beneficial interest each spouse holds. Common scenarios include:

• Jointly titled property: Both spouses are named; typically considered marital
• Individually titled but acquired during marriage: Likely marital under Illinois law
• LLC or trust-owned real estate: Ownership and control rights must be carefully analyzed
• Out-of-state or international holdings: Jurisdictional issues may arise, but Illinois courts can divide the marital interest

How to Divide the Property

In high-asset divorces, division can take several forms. Options include:

• Selling the property and dividing the proceeds
• Awarding the property to one spouse and providing an equalizing payment or other assets to the other
• Creating a post-divorce joint ownership agreement (rare but possible)
• Offsetting the value with other assets (e.g., one spouse keeps the real estate, the other keeps retirement accounts)

If a property is highly lucrative or emotionally significant (e.g., family-owned buildings), negotiation becomes even more critical. Judges generally prefer to avoid imposing post-divorce business relationships unless both parties agree and have a clear management structure in place.

Don’t Overlook the Tax Implications

Dividing real estate during a divorce has significant tax consequences, especially when the properties have appreciated over time or produce rental income.

Key tax considerations include:

• Capital gains on sale
• Depreciation recapture for income properties
• 1031 exchange limitations after divorce
• Income tax liability from post-divorce rents
• Basis adjustments when transferring property between spouses

A skilled Chicago divorce attorney will coordinate with your tax advisor or accountant to ensure these implications are factored into settlement discussions. A mistake here can reduce the real value of any negotiated deal.

Incorporating Terms Into Your Divorce Settlement Agreement

Once you and your spouse have agreed on how to handle the rental property, or if the courts have made a ruling, the terms must be clearly documented in your marital settlement agreement. A vague or incomplete agreement can lead to costly post-decree litigation.

We recommend:

• Naming the specific property or parcel by legal description
• Detailing the method of valuation
• Identifying deadlines for transfer, sale, or buyout
• Addressing division of rental income during the divorce
• Clarifying who pays the mortgage, taxes, and repairs until the transfer
• Including indemnification clauses if ownership shifts
• Outlining how future disputes will be resolved

Reasons to Choose Our Firm

Nottage and Ward, LLP brings decades of experience handling asset division in high net worth divorces, including complex real estate holdings, business ownership, and executive compensation. We use this knowledge to protect our clients’ long-term financial security.

Speak With a Trusted Chicago High-Asset Divorce Lawyer Today

If you’re facing a divorce involving rental or investment properties in Chicago or the surrounding counties, our attorneys can help you evaluate your options and advocate for a fair outcome.

Call (312) 332-2915 to learn more from a Chicago property division lawyer today.

Your real estate investments matter. Let’s make sure they’re protected.