Keeping rental property separate property during marriage?

Question

I've been reading this forum for a while, trying to learn as much as possible about real estate investing and property management. Lately, something that I've been thinking about is how to protect my investment if I were to get married.  At this rate, I expect to have my home paid off within 5 years, and I would like to protect this investment should I get married one day.  I realize that this is assuming a lot, but the thought of losing property through marriage-divorce completely undermines all the hard work in investing. ie, If I can't protect my assets then I would rather just "live it up" and not bother saving and investing.

From what I've read, your separate property will be converted to community property if:
1) Your spouse lives in it.
2) If you include your spouse's name in the title.
3) If you commingle funds?

It seems like the safest strategy would be to use the property as a rental to avoid having your spouse live in it, while also generating income from the investment. And then setup a separate bank account specific and solely for depositing rents and drawing funds for the rental property. That way, all reinvestment can be drawn from the rents to prevent commingling of funds. (If you spend money from your normal paycheck to repair something in the home, does that automatically make the home community property?)  And any profits can be transferred from that account to your personal account or a joint account with your spouse for general use. And of course, a prenuptial agreement to coincide with this.

Any thoughts on this strategy? Or is there a better way to protect your separate property?

Rob K. · Answer

As far as what others mentioned, a pre-nup is a good idea, but it only protects assets you had before the marriage. Anything you buy after getting married is yours AND hers. I made a lot of money in my early 20's and had a pre-nup when I got married. Now after 13 years and two kids, the pre-nup is probably worthless. I don't need it anyway because my wife is awesome. I just wanted to have it as an insurance policy. I expected the best, but planned for the worst.

If you're so worried about divorce, why get married? Just live with her. Then if it doesn't work out or she gains weight, have her move out and find a new girlfriend. Problem solved. You keep your house and your cash.

Jon Holdman · Answer

Why would you marry someone that you're worried about protecting your assets from?

Jim Tarwater · Answer

I highly suggest you get a pre-nup.  State laws will determine what you can protect.  I'm in Texas which is a community property state and you can protect your property and any future earnings if you keep them separate.  Never put investment funds in a joint account.  Also, don't pay for any repairs or investments with joint funds.  I see some responses say to trust your spouse, but with the divorce rate around 50%, that is a big risk.  Would you go without homeowner's insurance if there was a 50% chance of it being destroyed in your lifetime?  I went through a costly divorce and lost a lot of my assets.  I am now married a second time for over 9 years, but I did get a pre-nup signed before the marriage.

Chris F. · Answer

people say "if you love somoene you shouldn't even be thinking of a prenup", but while love is great, so is good planning. getting life insurance in case you die doesn't mean you plan to die. it's just hoping for the best, planning for the worst as David says. Touchy subject, but a necessary evil.

David Egger · Answer

Ditto Rob K.  Expect the best, plan for the worst.  My fiancee and I are getting a prenup that mostly just re-states current state law, but who knows when someone might turn it into a community property state.  My 401k, IRA, Brokerage accounts and two duplexes are protected, as are hers, and our student loans are kept separate as well.  All I had to agree to was whatever the state said as far as child support (which you can't reduce in a prenup anyway) and 2% of AGI per year set aside for reimbursement for child expenses like sports, educational extracurriculars, etc.

Jeff B. · Answer

Sheez;  Wife & I just commemorated our 50th anniversary in Nov'16  so obviously we're not yuppies, but stable, mature adults.

Those creating Prenups usually end up exercising them - - I wonder why?

I hope your spouse NEVER finds this thread.  IMO my personal relationships, any and all of them, come far ahead of any possible REI.

So sorry to see that yours do not - - and yes, that's a biased opinion.

Mimi H. · Answer

Divorce happens. Actually, almost 50℅ of the time. It's wise to know the details of community property vs private property so both people can be protected. Best case scenario, it's never used.

Planning for the worst doesn't mean the person is a cheapskate. A cheapskate is what makes someone a cheapskate. And if someone splits the bill down the middle and that's not your style then why move forward?

Most attorneys who are savvy with divorces will give a free consultation. Take advantage of it.

And yes, it's quite possible that you'd impress your girlfriend by being prepared. It's not meant to be a one way agreement as shown in movies.

I'm always surprised to hear people sounding offended by a prenup. If neither is out to take advantage then it's just planning. You can do other financial planning together too.

Not all women roll up being gold diggers, some come with considerable assets. Maybe you'll need to show her that you're not after her assets, inheritance (community property in CA if it's during marriage btw - so there's something that you'd want pre-nuped)

Good luck with it.

Jeff S. · Answer

It sounds like you expect to marry someone who is broke. If she has assets and a future maybe it would be her that would be worried.

Check for common goals. That could help.

Marry someone that took her last husband to the cleaners (tic)

I see you live in Seattle so it is possible your home is valuable even if it is ordinary. Why not marry a homeowner?

Most people are attracted to people of similar financial backgrounds although spenders and savers have a tendency to hook-up too.

Are there kids? Assets (equity) could be placed in trust both for yours and her kids and the 2 of you could start from scratch assuming ample income.

Be careful, don't die rich and alone.

Kenneth T · Answer

Thank you for the replies. I've since come across a California law, called the "Moore Marsden Law" which entails a perfect and fair way calculate ownership of property before and during marriage, and after divorce (should it happen). I believe that the law is in effect by default in California, but for couples in other states, it can be a great example and precedent of how to draw up a fair prenuptial agreement.

http://farzadlaw.com/family-law-appellate-decision...

https://www.sandiegodivorceattorneysblog.com/2015/...

Tamara R. · Answer

My sister married a guy that sounds like you.  He wanted to keep everything separate—so they did and they split all their bills right down the middle.  Sounds romantic doesn’t it?  Now he is divorced, friendless and has been unemployed for three years—but he has all of that money:)  Not trying to beat up on you, but if you are concerned about this already I see a tough road ahead for you and your future spouse.  Nothing wrong with planning ahead, but marriage should be a partnership.  If you marry a decent person with good values and whose goals are similar to your own, I think everything will work itself out even if you do get divorced because you will have each other’s best interest is mind.  Full disclosure—when my husband and I married we discussed if we should combine our assets.  Our goals and assets were similar, so we did that and I put his name on the title to the house I owned and he put me on his.  Through our discussions, we decided there was no point in getting married if we didn’t trust each other.

Keeping rental property separate property during marriage?

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