Imputed Rental Income & Colorado Divorce

House with For Rent sign in front.

Rent is income – that’s pretty clear. The IRS requires you to declare rent received on a Schedule E, and the Colorado child support statute’s definition of income includes “rents”. C.R.S. 14-10-115(5)(a)(I)(J). The maintenance statute has a similar provision. C.R.S. 14-10-114(8)(a)(I)(J).

And Colorado courts will impute income to people who are voluntarily under-employed and could be earning more, or to people who are sitting on a pile of cash and not investing it. But what happens if a court tries to combine these two principles, and impute rent to a person with a roommate who is not actually paying rent?

A brand-new decision from the Colorado Court of Appeals has held that a court cannot impute rental income to a person who is sharing his primary residence, where the residence has not traditionally been used as rental property. Gibbs.1In re: Marriage of Gibbs, 2019 COA 104.

In Gibbs, the father was living in the 5-bedroom former marital residence with his girlfriend and her three children. The girlfriend was not paying rent, though she did pay for utilities and groceries.

The trial court found that this was not a fair market exchange, as the value of the rent-free living far exceeded the cost of utilities and groceries, and that the father should have been charging rent. Accordingly, the trial judge imputed $1500/mo of rental income to the father, which it found to be the value of the rent the father was voluntarily foregoing.

The Court of Appeals recognized this was a case of first impression:

“no Colorado statute addresses whether potential rental income can be imputed to a party for purposes of calculating maintenance. Nor does any Colorado statute address whether potential rental income from a party’s primary residence that has never before earned rental income can be imputed to that party for purposes of calculating maintenance.”

Gibbs.2In re: Marriage of Gibbs, 2019 COA 104, ¶ 21.

The court then reversed the trial judge, in effect holding that when a person was acting in good faith, judges could not force him to become a landlord:

“No evidence in the record shows that the residence ever produced income. There is also no evidence indicating that husband was acting in bad faith by staying in the residence to inflate his monthly expenses and avoid paying maintenance to wife. By imputing rental income to husband, the court effectively recharacterized husband’s home from a primary residence to an income-producing rental property. This was, in our view, an abuse of discretion.”

Gibbs.3In re: Marriage of Gibbs, 2019 COA 104, ¶ 22.

Note that the decision is not a prohibition on any imputation of rental income under any circumstances, and is limited to situations where a person is living rent-free in a party’s primary residence:

“we conclude that, where a party has not historically earned rental income from his or her primary residence, potential rental income from that asset cannot be imputed to the party for purposes of calculating maintenance.”

Gibbs.4In re: Marriage of Gibbs, 2019 COA 104, ¶ 24.

More Information

See the all-new Rental Income & Family Support article in the Colorado Family Law Guide for a complete discussion of how rent is treated for purposes of child support and alimony in Colorado.

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