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Updated over 5 years ago on . Most recent reply
Are spouse's assets protected without an LLC?
Hello BP,
I'm looking to start my adventure into rental real estate investing and had a question about using an LLC.
I would like to avoid using one until I've got a couple of properties under my belt as I'd intend on using conventional loans and my current assets are modest.
However, my wife has significant holdings in real estate and stocks/bonds that were acquired prior to our marriage.
If all of our future real estate purchases are in my name, are my wife's assets protected or are we viewed as a single "legal entity"?
I imagine this will depend on the state and I intend on consulting with a lawyer but I wanted get a general idea regarding all this before I did that.
I should note we reside in NY and will more than likely be investing in PA.
Also, when the time comes to set up an LLC, would you want to do it in the state in which you reside or the state in which your properties are located?
Thank you for your help!
Most Popular Reply
![Vitaliy Volpov's profile image](https://bpimg.biggerpockets.com/no_overlay/uploads/social_user/user_avatar/442193/1705655140-avatar-vitaliyv.jpg?twic=v1/output=image/crop=270x270@76x41/cover=128x128&v=2)
Hi John,
Congratulations on deciding to jump into real estate! If you do any research here on BP and on the internet at large you will see that there are about as many opinions on your LLC question as there are articles and videos on the subject.
While I am an attorney, please do not take anything I say here as legal advice -- you definitely need to consult with an attorney who can look at your and your wife's whole financial picture in depth. I will just tell you what I have been doing for my real estate investments. I bought my first 4 properties in my personal name for the same reason you mentioned -- better financing terms and because I was owner occupying some of them. As I became a more sophisticated investor and as I began partnering with other investors and acquiring private financing for my deals, I switched to owning every new property in a separate LLC. I now exclusively use the BRRRR method where I buy multi-family properties with 100% private financing, rehab or improve the property in some way, raise the rents, and then refinance the private money out with a commercial loan and reuse it on the next deal.
I agree with the reply above that you should form your LLCs in the state in which the properties are located. A lot of gurus on the internet and YouTube will also tell you that you should create umbrella LLC's in a few select states where you can claim statutory "anonymity." I question whether such practice has the desired effect in reality. Anonymity is very hard to come by even if your entities are set up in this way. Someone will know who you are and if a lawsuit is brought against your entities because of some catastrophic loss, it is not likely that you will be able to avoid discovery of where the true ownership lies. To me, creating an extremely complex web of entities together with the accompanying expense is typically not worth the trouble. But, others may differ.
With regard to whether your wife's personal assets would be protected if something were to happen at one of the rental properties owned in your name which you purchased after you got married, the answer is it might depend on how your state views marital property and whether she has any ownership interest in your rentals and you in hers and her other assets. This is another area where you should definitely consult with an attorney and get individualized advice. The small expense for an attorney's fees up front will be worth it later down the road.
Vitaliy