Is a Timeshare Considered a Financial Asset?

Many people purchase timeshares for the promise of guaranteed vacations, but this often leads to confusion about their financial standing. Whether a timeshare qualifies as a financial asset is a common concern for owners. This article explores the classification of a timeshare from both a financial and accounting viewpoint to clarify its role in your personal finances.

The Financial Definition of an Asset

In personal finance, an asset is any resource you own that holds monetary value. Its characteristics include the ability to provide a future economic benefit, be converted into cash, and potentially increase in value. Assets are used to calculate personal net worth, which is the total value of your assets minus your liabilities, or debts. For example, a residential home often appreciates in value and can be sold, while a savings account is a liquid asset easily converted to cash. In contrast, a liability is a financial obligation, such as a mortgage or a car loan.

How a Timeshare Functions Financially

A timeshare’s financial reality diverges from the characteristics of a traditional asset, primarily due to its immediate and substantial depreciation. Unlike real estate, a timeshare’s value can plummet right after the contract is signed because the initial price includes significant marketing and sales costs.

Timeshare ownership also involves continuous financial obligations. Owners must pay annual maintenance fees for the property’s upkeep, management, and insurance, which average over $1,000 and tend to increase over time. Owners may also face special assessments for major repairs or upgrades, adding another layer of unpredictable costs. These recurring payments function as a persistent liability.

The resale market for timeshares further complicates their classification as an asset. The secondary market is oversaturated with far more sellers than buyers, which drives resale prices down significantly. Many owners find it impossible to sell their timeshare for a fraction of the original price. In some cases, owners must pay a third party to take over the contract, giving the timeshare a negative value.

Timeshare Classification in Legal and Financial Contexts

In legal and financial proceedings, a timeshare is treated as property, but its classification as an asset or liability depends on the context, such as in estate planning, divorce, and bankruptcy.

Estate Planning

For estate planning purposes, a deeded timeshare is considered real property that passes to your heirs upon death. While many timeshare contracts include a “perpetuity clause” that extends the obligation to pay maintenance fees to the estate, beneficiaries are not forced to accept this burden. Heirs have the legal right to refuse, or “disclaim,” the inheritance of a timeshare, which is a formal process that must be completed within a specific timeframe after the owner’s death. By disclaiming the property, the heir avoids inheriting both the timeshare and its associated financial responsibilities. If all beneficiaries disclaim it, the timeshare company may foreclose on the property.

Divorce Proceedings

During a divorce, a timeshare acquired during the marriage is classified as marital property and must be divided. It is often treated more like a debt that needs to be allocated between the spouses. The couple must decide if one person will take over the timeshare and its financial obligations, if they will attempt to sell it and split any proceeds, or if they will continue to share it.

Bankruptcy Filings

When filing for bankruptcy, a timeshare must be listed on the petition. A deeded timeshare may be considered an asset with a nominal value, which a Chapter 7 trustee could attempt to sell. A timeshare contract can also be treated as an “executory contract,” an ongoing agreement that the filer may be able to reject. Rejecting the contract allows the filer to surrender the property and discharge the associated debts for maintenance fees.

Determining the Fair Market Value of a Timeshare

Determining the fair market value of a timeshare requires a realistic approach that focuses on the resale market, not the original purchase price. The value is influenced by factors like the resort’s location, the type of ownership, the season of use, and the size of the unit. One of the most effective ways to gauge value is by checking listings on timeshare user group forums and online marketplaces to see what comparable timeshares have actually sold for. You can also contact the resort developer or the homeowner’s association (HOA), but be aware that they may not provide a realistic resale value. While a professional appraisal is an option, the cost of the appraisal can often exceed the timeshare’s actual market value, making it an impractical choice for most owners.