Divorce-Proofing Real Estate Assets

NEW YORK (MainStreet)—All hail Wendi Deng and Rupert Murdoch for prudent forethought in signing a pre-nup. That's not always the case, and one spouse can end up paying big time.

Jamie McCourt claims she was not fully informed about her former husband's baseball franchise, the LA Dodgers, at the time that she agreed to a $131 million divorce settlement in October 2011 that included a share of the couple's residences as marital property. Frank McCourt subsequently sold the LA Dodgers for $2.15 billion six months later. As a result, the ex-Mrs. McCourt was in Los Angeles Superior Court last month asking to set aside the divorce agreement and get awarded a total of at least an additional $900 million.

Also see: Is the $399 Divorce for Real?

"After a lot of litigation, their postnuptial agreement was deemed invalid for a variety of reasons," said Jeffrey A. Landers, a certified divorce analyst in New York and author of Divorce: Think Financially, Not Emotionally (Sourced Media, 2012). "Post-nups can be much harder to enforce than pre-nups and many states do not recognize post-nup agreements."

While laws relating to divorce, trusts and real estate differ from state to state, Landers advises four tips to divorce-proof real estate assets before and during marriage:

1. When receiving an inheritance in the form of a real estate asset during marriage, Landers suggests separating the property from marital assets by not putting a spouse's name on the title and refraining from spending marital funds to maintain the property or pay its mortgage and real estate taxes.

"If the spouse's name is on the title or you use marital funds to improve the asset or pay off its mortgage, for example, it could be considered marital property in a court of law and potentially divided upon divorce," said Landers.

Also see: Divorce and the New Wheels Dilemma

2. In some states, the appreciation on the value of a property purchased while single that occurs during the term of a marriage could be considered marital property depending on whether it's active or passive appreciation. Passive appreciation is when a property's value increases by inflation or market forces alone and marital money is not used to pay real estate taxes on it. In this case, the asset would typically remain separate property.

"If you built a building on the empty lot while married, even if acquired while single it could be considered active appreciation because it went up due to the efforts of the couple directly or indirectly. In many states, the active appreciation could be construed as marital property," said Landers.

3. Once married, both parties are viewed as part of a fiduciary relationship. Implementing a trust is one way to divorce-proof a real estate asset purchased after a wedding. "Real estate assets transferred to a trust are considered owned by the trust, so upon divorce it doesn't belong to either party," said Landers. "Instead, it's owned by a third entity being the trust. However, both parties must agree. If not, the trust can be dismantled during divorce proceedings due to fraudulent transfer laws."

Also see: Divorce and the Hardest Work of Getting Back to Work

4. While still single, set up a domestic or foreign asset protection trust to park real estate assets and remove personal ownership at marriage. "After the wedding, you no longer own the property, but the trust can act as employer and pay you, the beneficiary, a salary to act as its manager," said Landers. "You don't have to wait until you die to benefit."

--Written by Juliette Fairley for MainStreet

Show Comments

Back to Top