San Diego, CA · Member since 2016 · 44 posts · 31 votes
Hi All,
I ask mainly out of curiosity and because I *may* be getting married soon (yay). What happens to investment rental properties and investment brokerages in my name only both before and during a marriage in the case of a divorce? I've heard a lot of conflicting points on the matter and would like some insight into the matter. I am from California if that helps! Thank you.
I am no lawyer, but I believe California is a community property state. This means that everything owned in the marriage becomes the property of both and will be split 50/50. This is why the celebrities get prenups done. You should at least consult an attorney before you marry. Here in Florida, we are an equitable distribution state which generally means that any wealth built during the marriage will be distributed equitably. This is my two cents. Check with a family law attorney.
confirmed, California is mandated by statute, 50/50 split of community property. The burden will be on you to show why your property should not be considered community property. Prenup
On a more serious note, you need to check the laws in your state. Please do not rely on the notion folks might say that as long as it was in your name before the marriage...you are safe....NOPE!.
In some states, all she needs is a lawyer to prove that you co-mingled the rental and personal funds while you were married....and its all on the table.
Same thing like a LLC and piercing the corporate veil.
A great prenup and a great lawyer. CA laws are very progressive, but not exactly fair. If you want to protect yourself, then you have to run everything like a business. Like someone said above as an example, DO NOT co-mingled your personal and business money. Prenup will not protect you there when her lawyer is going through all your books. I am not a lawyer, but I had some experience. A partner had a divorce, and they had me going through ALL the records to prove every single revenue and loss for EVERY single year of business. Her lawyer was thorough. The great cliche irony, he was paying for the her lawyer that was taking his money.
Best of luck in life, I'm sure you met a good one.
That was fast! Thanks for the input. I was under the impression that if an account or holding was under my name only, then it would be so after the fact as well.
So for the sake of argument, if a rental was generating cash flow and said cash flow was used for something during the marriage, it would be community while if no cash flows were used for anything during the marriage, would it be communal property? Dang that's trippy.
Not that simple. Its a two way street. More important that none of your or her personal money goes into the properties. All the other side needs is one receipt that shows you bought personal groceries and along with it a can of easy-off or a broom/mop or a bulb for the rental property...BAM!
Whenever I buy stuff, I would actually go through the process of having anything for rental properties rung up on a separate receipt.
If you are going to make the commitment to marry and take the risk you should be prepared to divide 50/50 if the marriage lasts longer than 5 years. If it doesn't last 5 years just turn everything over to lawyers to battle out.
Regardless when all is said and done all you will have in the end will likely be cash. Investments will be liquidated.
Get a prenup. Specify and define assets each party is bringing in. And what happens to them in case of dissolution. This will cost money. Make sure both of you get independent attorneys. This is the only way prenups hold up in California courts. Its not the most romantic thought but really marriage is a serious contract. Its better to know and define the terms up front. If not the state will decide for you and you may not like the result
There are a lot of good answers posted herein but Divorce is so fact sensitive that an accurate answer to your specific situation is impossible without a conversation. In addition to being a qualified intermediary for 1031 exchanges as well as having provided expert testimony in more than 30 divorce related cases as a business valuator/forensic accountant, I also mediated over 3,000 divorce cases and had the chance to draft up many pre-nuptial agreements over the years.
I am happy to speak with you over the phone and then capture the non-confidential portion of the conversation within the forum so everyone receives some benefit. Again, should you decide not to call or simply do not have time, I would definitely make time to speak to an attorney at some point because Divorce law is seen and ruled on in a court of equity and not a court of law so the significance just in that distinguishing factor alone could have an impact on how the response to your question is handled. Good luck and I am more than happy to discuss if you feel their would be any benefit as I am retired from divorce mediation and am not looking to generate any income whatsoever but merely trying to help a fellow investor out. The ball is in your court.
@Rich N. so you use a different form of payment/account for that separate receipt?
I do not. I just pay in cash or credit card, but use that receipt to get reimbursed by the property. So it "shows" that eventually money used was the rental. i.e. On the receipt write: 123 main st, apt 2, front door lock. Likewise on my expense report, then have the paid check match up to it and deposit that check back into my personal bank account to prove it came back.
Just to be clear, I do this because its in a LLC not because of any pending divorce (besides, we got married with nothing and everything is from the marriage)
@Eugene Lee If you're even thinking about divorce and what happens to your assets before you get married, you should either get a prenup or reconsider marriage altogether.
Generally speaking; no, keeping money in your own account with only your name on it will not protect you from something known as the "transformative element" in divorce cases. When dealing with issues of divorce, it is better to frame all the property as either being a part of the "marital estate" or not being part of the marital estate. The marital estate makes up all that property which is considered joint property.
In the United States, there are two types of states; community property states and equitable division states. The state you are in will largely determine whether a piece of property is part of the marital estate. Most generally speaking; property acquired during the marriage is presumed marital no matter how you title it.
Also, generally, property acquired prior to the marriage is generally considered separate property. Where the two types of states differ is when separate property is transformed into marital property. Transformation can happen a few different ways; contribution to the sole property resulting in co-mingling, reliance of the other party on that separate account, use of the separate property to purchase a new item that is jointly titled, etc.
If you want to plan for the future and protect your current assets, you need an attorney. They will be able to help you draw up a pre-marital agreement which highlights the expectations of the parties as to separate and marital property.
These pre-marital agreements are important for a myriad of reasons, including; division of qualified retirement plans under ERISA, healthcare treatment planning, and much more.
Do yourself a favor and talk with a qualified local attorney on these matters.
Congratulations! Its also a very good question! I'm not sure about CA, but in VA, any real estate acquired *BEFORE* the marriage isn't a marital asset, so anything before is not in question.
I'm in a similar situation, and depending on how you want it split, it may be easier to make it in an LLC. If your future wife is your business partner as well, why not make an LLC, and have you and her both own 50%? That's how me and my fiance have it split up, so if anything happens, there's no fight for whose property the investments are.
If she's not involved, and the investment properties are strictly your thing, and you want to make sure, I would talk a lawyer. No offense lawyers--I HATE lawyers. the bad ones will make you HATE lawyers... It's $$, but it's worth the peace of mind. It's cheaper to be proactive than reactive.
Most of my stories start with "my parents...." But after 20 years of marriage and 50 rental properties, my parents got divorced in the State of Washington (also a community property state). Real estate was my dad's full time job, my mom had her nursing job and helped with the real estate. They divorced and used a mediator to split everything 50/50. My dad took all the properties, and paid her off with monthly settlement checks. They continued to get a long and my dad thanked her for all that she contributed to the business and never complained once about paying her.
I my case is was a lot like what Julie mentioned above. I own mine in a Self Directed IRA. So for example if my equity was 200K, and the rest of our joint IRAs were 500K, she got the first 200K of the balance to 'equal out' the properties and then we split the remainder 50-50.