“I couldn’t have done it without him”: I built a real estate portfolio of 23 units while we were dating. How much should I give my fiancé in our prenup?

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By Quentin Fottrell

“They were bought with my money, and I’m the sole owner on paper – but my fiancé was involved in the whole process”

Dear Quentin,

I am about to marry a wonderful man. I built a 23 unit investment portfolio while we were dating. Now we are wondering how to create a prenuptial agreement.

Over the years, I have identified, purchased and managed a portfolio of rental properties spread over three buildings. These were bought with my money, and I’m the only owner on paper – but my fiancé was involved in the whole process and helped with maintenance and renovations from the start.

I couldn’t have done it without him. We recently purchased our dream home, so the home he previously owned will also be added to our rental portfolio. We know we should probably have a prenup, but we don’t know how to structure it.

In a hypothetical prenup, he would keep the new house and my second largest investment property: $1.5 million worth. (He would need the investment property so he could pay off the new mortgage on his own.)

In another scenario, I would get the house he bought, which is of lesser value, I would keep my largest investment property and the smallest investment property: a value of $2.35 million.

The alternative option is that all properties will be jointly owned and we would do a percentage profit sharing in perpetuity. Nothing can ever be sold for cash unless both parties have agreed to the sale, and we predetermine how the profits are split.

I would have the right to manage the investment portfolio and exchange 1031 one of the investment properties for a larger investment property if I wish. In this scenario, I would get two-thirds of the business and he would get one-third.

What do you think about this? I know I’m signing a prenup that will basically make him a lot of money, but I think he’s entitled to something for helping me build it.

building manager

Dear property manager,

Let’s eliminate one thing first. You write: “I couldn’t have done it without him. It may seem like it would have been harder to do it without him, but I have no doubt you would have done it regardless. Risk taking, entrepreneurship and good judgment in choosing these properties at the right time are all at your doorstep. Give yourself the kudos and respect you deserve for what you’ve accomplished. You also paid the down payment and, I assume, the mortgages. You have to take this into account when making your calculations.

You bought these properties with your own money, so he couldn’t have done it without you. Your fiancé provided backup support, but these properties belong to you. I don’t believe an equal split is fair to you, and I’d be careful not to trust him with too much of your business. I hope you live happily ever after, but 50% of marriages end in divorce, and you may regret being so generous. Building this portfolio took a lot of years and hard work. Signing a large percentage to a third party only takes a minute.

Clever move to put it all in writing. A prenup is one of the most important contracts you will sign. There are so many contingencies for couples to prepare for, including what will happen to a business if you break up. Some 15% of married couples have signed prenups, according to a recent Harris Interactive poll, up from 3% more than a decade ago. This figure rises to 40% for married couples aged 18 to 34. Prenups require couples to be completely transparent about their finances.

I asked Tricia Mulcare, a Certified Financial Planner and Homrich Berg Certified Public Accountant in Atlanta, Georgia, to weigh in on your letter. She is also more cautious. “A simple solution could be to document the current values ​​of the various properties on the date of your marriage and note that if you separate, the current value of your assets at that time would be divided according to the initial percentage of ownership” , she answers. . “If you want to give him ‘credit’ for his help over the years with maintenance and renovations, you can increase his percentage accordingly.”

“One way to do this might be to try to quantify the number of hours your fiancé has spent over the years on maintenance and renovations versus what it would have otherwise cost to hire a professional” , she adds. “You could say that your time spent identifying, buying and managing the portfolio also has a value that could offset some of its contributions, because you could have hired an outside management company.” Mulcare also suggests outlining your plans for rental income during your marriage. Will it be split 50/50? Or 75/25?

And what if you die before your fiancé does? If you owned those properties jointly, he would automatically inherit them and your family wouldn’t see a red penny. “Either way, it’s a good idea to document your joint desire to maintain the properties until you both agree that it’s a good time to sell,” Mulcare added. “It’s also important to stipulate the plan for the distribution of proceeds from any sale. It probably wouldn’t hurt to further stipulate that you would be the one managing the wallet with the right to participate in a 1031 exchange.”

I don’t want to pour cold water on your plans. It seems that you both take a responsible and proactive approach to your marriage, which bodes well for future negotiations. You also spoke openly about your options and had difficult conversations. Getting married is an extremely exciting time, and it’s never a good idea to let your emotions rule your finances, especially after all the years of hard work you’ve put into these properties.

It’s too much to make this decision on your own, with the weight of the relationship on your shoulders. Hire a lawyer and/or a mediator to help you reach a fair outcome for your boyfriend and yourself. Take at least some of the emotional responsibility off your knees and hand it over to a cool, collected independent third party. And remember this: once you’ve sold half of your real estate portfolio, there’s no going back.

Check out the private Moneyist Facebook group, where we seek answers to life’s trickiest money problems. Readers write to me with all sorts of dilemmas. Ask your questions, tell me what you want to know more or weigh in on the latest Moneyist columns.

The Moneyist regrets not being able to answer the questions individually.

By emailing your questions, you agree to have them published anonymously on MarketWatch. By submitting your story to Dow Jones & Co., the publisher of MarketWatch, you understand and agree that we may use your story, or versions of it, in all media and platforms, including through third parties.

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-Quentin Fottrell

 

(END) Dow Jones Newswire

09-29-22 2132ET

Copyright (c) 2022 Dow Jones & Company, Inc.

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