Your thoughts on unmarried middle-aged couple joint investing?

Question

My fiance and I are discussing marriage within the next year or so. We're also discussing beginning investing in real estate with a focus on single family flips, or multi-family buy and holds for the first few purchases. In essence we're planning on establishing retirement via real estate.

My spider senses tell me that the majority of your opinions would reject any premarital joint venture. However, I believe, as with virtually any subject matter, some of you may have valid reasons to disagree. With so many investors articulating their partnership terms of agreements to suit their unique goals and needs, is it unreasonable to think that we may be able to structure our agreement so that it would address many of the inherent concerns our unmarried status brings to the table? Please comment. Thanks.

Linda Weygant · Answer

My boyfriend and I have no intention of getting married.  Between the two of us, he owns our residence plus one rental in his name only.  He owns one property free and clear through his IRA.  I own one property in my name only.  We own one jointly 50/50 and we are partners with two other people in two LLCs that each has a property.

Before we started down the road, we wrote a partnership agreement, even though we don't own any of the non-LLC properties in a partnership.  But essentially what it is is a document that we both signed.  It lays out who owns how much of each property, who is entitled to what equity and what happens to the properties in the event that we split up.

We both have children from prior marriages and it was important to us that our children are taken care of in the event of our deaths.  So we talked about how much goes to kids, trusts, the other partner, etc, etc, etc.  We really hashed through it all and got very nitty gritty.

We have no idea if our document will actually hold up in court, however it does document our full intent to everything and when we signed it, we both agreed to honor it.  If/when we split and if/when there is a dispute as to the properties, I fully intend to let this document be the one that governs a judge's decision should we find ourselves in that position and my boyfriend says the same thing.  So in the event we didn't think of every contingency, it's our belief that a judge could look over this document, ask us questions as to our intent, likely infer the intent in the document and make a ruling based on it.

That's our hope, anyways.

Is this the best legal way to go about it?  No, not really.  The folks who advocate a formal operating/partnership agreement and/or a "pre-nup" really do have the right of it.  I'm just letting you know that we went about it differently and we think it is what will work for us if the unfortunate happens.

Chadd Naugle · Answer

@Joe Rodriguez I would have an partnership agreement drawn up that specifies what you are doing....Yes it will cost a little money, BUT it will save you a tremendous amount of headaches, and potentially money in the long run.... I would identify in the agreement profit splits, exit strategies, and management of the project to say the least.

It depends on your strategy really...if you are doing fix and flips, then there are so many different opinions on little things like even what color to paint the walls, so as you can see, this form of investing has a lot more details that would need to be hashed out with partners.

To keep it simple, I would suggest buy and hold, with profit splits, and predefined exit strategy, and maintenance.  So for example you put 60% of the money, and your partner puts up 40% of the money, and you do a 60/40 profit split, and sell the asset at the end of 10 years, unless both parties agree to continue with investment....if either party does not want to continue, you sell, or the partner buys the other one out., but you should determine how you would calculate the value if one partner is trying to buy the other out.  With it being predetermined, when it comes time to either cash out refi, or sell, it has already been established, before purchase, and it is a legal document.

Even if you part ways in your personal life, the investment could still be good, and you both could continue to be business partners.

Jesse T. · Answer

Given your time frame, I would keep money separate until you are married.  Flips actually would be pretty easy to do separately(all though at a lower price point), just have one of you handle the finances on a project.  There is nothing to say you can't work together on it - especially since ultimately you will share the benefit.  There are a couple ways to do it - have the partner with the deeper pockets finance, alternate between projects or pick the partner with the lower tax bracket.

If you can acquire buy and hold properties in the short-term, you might be able to use your separate finances as an advantage.  You could each separately acquire the max number of properties via conventional investor financing.  That is a pretty aggressive expansion, so just because you could do this doesn't mean that you should do this.

I would hold off on Multi-Family properties until your finances have been joined.

JD Martin · Answer

If you structure a written agreement the way you would with any other business partner, maybe with a dissolution or prenuptial clause should you get married, I would think it could work. A lot depends on the maturity of the people involved, and when you start talking romance it could devolve quickly.