Financially separate spouses, how to creatively split a triplex financially?

[monstermonster]

Hey mustachians, I haven't been around here much, but I figured this was the RIGHT place for this complicated question for creative solutions. I'm looking for some advice and ideas about how folks might approach the legal aspects of splitting an owner-occupied triplex + ADU (4 units) between spouses with financially separate but unequal income. Please excuse the fact that this is very much a Rich People Problem - but the question has more to do with *ethics* and *hypotheticals* than just something our CPA can answer. We're MFJ but I just pay my portion of the taxes that isn't withheld to my spouse, they pay the rest since 90% of the taxes are from their income.

Me (35): Make $60K/year between day job and side business, save about ~$30K year

Spouse (37): Makes ~$700K/year (yes let your eyes bulge out, mine do) currently between day job and side businesses, including owning a rental property and investing in a commercial office property

Currently, we split shared expenses 50/50 except rent (we rent in a big apartment), where I pay 40%, and my SO pays 60%. Everything is separate - no shared accounts or property. Anything that isn't shared is money we are free to spend. They own a rental house + ADU from before our marriage, rented to tenants. We're in Oregon and therefore I have no claim to the rental property as it's from before marriage (fine with this). They paid off the mortgage on this house and pay all expenses related to it.

This has been fine for years except *now* we've torn down the house on the rental property and are replacing it with a triplex where we will live in one of the units. The ADU still stands (currently not rented). We've been planning and designing this project for years and we're equally as invested in it, but the ~1.7 Million mortgage is in my SO's name only.

Because we will live in the property when it is done (next year), suddenly we're dealing with my SO owning the property, but me living in it. I'm also planning to work to manage the other three units (I am invested in being a good landlord, and am taking classes on landlord/tenant laws). They travel a lot for work, so I need to be able to have power of attorney for any financial decisions related to the house in case of emergency.

Because the mortgage will be high and property tax will jump a lot (especially since we will try to pay it off as fast as possible), I will need to pay more towards housing than I do in my current rental. But I don't want to pay a ton more but not have any equity in my name or right to the property. But also I'll be living and working on the property, and there's a possibility I would have a claim to it because it's built during the marriage (but on land that was bought prior to marriage? ugh, that's one for family lawyers)

• Any ideas about how we make this fair and equitable legally?
• What kind of terms we could put in a postnup to protect both of us?
• Should I be on the deed? Most of the $ going towards the house loan will be from my spouse's income, but some will be coming from tenants in the other units. Much of the sweat equity in managing the other units will be me.
• Should I just pay my spouse fair market rent for renting one bedroom in our unit and not accumulate equity?
• Should we form an LLC for the triplex, and have me be an owner with an unequal share in it, contributing sweat equity rather than financial capital? That way I get the flow-through profit and losses?
• Should they just pay me hourly as a property manager, and use the opportunity to put more money in my SEP-IRA as compensation for me not getting equity and lower our joint taxes?

(Also I have told my spouse they have to get life and disability insurance on the mortgage, since one of my huge fears is them croaking or not able to work a bananas-high-compensated job and me being on the hook for a $9,000/month mortgage - the plan generally is to pay off the property while still working high paid job before RE, but there will still be a ton of property taxes).

[PMJL34]

There is no "correct" answer here. It's obviously up to you and your partner to decide what is "fair." But since you are asking for our two cents...

I personally don't like the way you two have handled finances thus far at all. With an income/wealth gap so steep, your partner already has huge power over you and the thought of you even paying 40% of rent is absurd to me. And now you are moving into their property and spending your time/money on their property (for potentially the rest of you life), but you'll never get a penny out of it in case of a separation or even death??? You really will be at the mercy of your partner.

And as the years go by, your partner will be come massively wealthier and you will continue to not gain anything other than the privilege of living on their property? This is not the type of marriage I like. As your partner, I wouldn't even feel comfortable holding all the cards knowing that my partner has very little. But that's just me.

I don't have any recommendations except to take baby steps to level out the playing field. This is a marriage and both of you should prosper. Will there be child/children involved in this marriage too?

But different strokes for different folks. Maybe I am way off base. I'm sure there are plenty of other marriages with similar arrangements and they do fine.

Best of luck!   

   

[PMJL34]

Sorry I realized I didn't answer any of your questions lol

Any ideas about how we make this fair and equitable legally?
I have no idea

What kind of terms we could put in a postnup to protect both of us?
I have no idea

Should I be on the deed? Most of the $ going towards the house loan will be from my spouse's income, but some will be coming from tenants in the other units. Much of the sweat equity in managing the other units will be me.
Absolutely

Should I just pay my spouse fair market rent for renting one bedroom in our unit and not accumulate equity?
This is a marriage and you are their partner. Not a roommate. I don't like this.

Should we form an LLC for the triplex, and have me be an owner with an unequal share in it, contributing sweat equity rather than financial capital? That way I get the flow-through profit and losses?
Too complicated for my taste. You should be on the deed even if it's just a percentage

Should they just pay me hourly as a property manager, and use the opportunity to put more money in my SEP-IRA as compensation for me not getting equity and lower our joint taxes?
Again, this is a marriage. You are not your partner's fucking employee.

[monstermonster]

I personally don't like the way you two have handled finances thus far at all. With an income/wealth gap so steep, your partner already has huge power over you and the thought of you even paying 40% of rent is absurd to me.

I actually view it as the opposite. I feel if my partner started paying my living expenses, they would have power over me. Independence = power. Knowing that if anything went wrong, I would be fine and able to take care of myself, makes it feel more safe to me. Being financially dependent on someone else is TERRIFYING to me, and I've seen many people in bad situations because of it.

I still pay less than I would if I rented on my own and able to save about 50% of my income. To me, this is fair. When their income means I can't qualify for something (like copay assistance for my medication) they make me whole.

I'm also currently on their health insurance which is saving me a lot of money.

And now you are moving into their property and spending your time/money on their property (for potentially the rest of you life), but you'll never get a penny out of it in case of a separation or even death??? You really will be at the mercy of your partner.

I am entitled to their estate as their spouse in case of death, and I'm the beneficiary on any of their insurance policies. I don't know where you're getting this "in the case of death, you're fucked" thing. In the case of separation, I could clearly argue that I materially participated in the business of the rental units and make an argument for part of the property. But that would be the advantage of them paying me hourly (by putting money in my SEP IRA and lowering our taxable income)- I would be getting actively compensated for the sweat equity.

And as the years go by, your partner will be come massively wealthier and you will continue to not gain anything other than the privilege of living on their property?

Well, we're trying to make it more fair, that's why we're looking for ideas. But generally, my low housing costs if I don't pay towards the mortgage means I get to invest more money in things other than real estate.

As your partner, I wouldn't even feel comfortable holding all the cards knowing that my partner has very little.

I mean, please note *I* am the one out here asking these questions. We both want things to be equitable. Also, please don't cry me a river. I don't have "very little" - I am still rich. I just make a lot less money than my absurdly-compensated spouse.

Will there be child/children involved in this marriage too?

No

[monstermonster]

Should they just pay me hourly as a property manager, and use the opportunity to put more money in my SEP-IRA as compensation for me not getting equity and lower our joint taxes?
Again, this is a marriage. You are not your partner's fucking employee.

Lots of people work for their spouse's businesses precisely because it gives you access to more tax advantaged space and for spouses there isn't nondiscrimination testing for LLCs. This is particularly useful when you make enough money that you pay about 45% on taxes between state, local, county, and federal.

[MustachioedPistachio]

My recommendation is to form an LLC with your SO, and have the LLC own the property.

In the LLC's operating agreement, you two can decide how each of your membership interests will be handled, including voting rights, income distribution, loss distribution, and capital distribution. You can also lay out how your sweat equity will be handled. For example, you specify that you will perform XYZ tasks for the LLC (operating partner) to earn 1%-2% equity in the LLC each year, up to X%. I think this could address the fairness piece of your question while also giving it a legal framework.

If you do decide to go the LLC route, it certainly makes things more complex. But I think you could also bypass postnup amendments with this arrangement.

[PDXTabs]

Any ideas about how we make this fair and equitable legally?

I have personally had a judge in Multnomah County throw out a prenup that was drafted by an attorney licensed to practice law in Oregon. You (or your spouse) really want to find someone who actually litigates these contracts on the backend. I'm going to PM you the name of an attorney in Portland that I would trust to do this work. Don't be surprised if by the time you are done you have actually hired three attorneys to make it look good (separate counsel for each of you, plus the drafting attorney).

[G-dog]

Another married but separate finances person here.

Unfortunately I don’t know much about LLCs and how that may work to be more fair and equitable versus personal ownership.  There may be tax advantages though, including options for personal 401k accounts and the like via the LLC.

I do think you should be compensated for managing the property, the form of compensation may be influenced if you form the LLC.  Overall, straight pay seems easiest to track and deal with at least in regard to taxes.  But, Maybe you get increasing interest in the property over time as you manage it?  Maybe you start with 10% ownership.  Maybe you have 0% ownership, but 20% net profit? 

Are you thinking that if you have a share of the assets, you have a similar share of the liability (gross financials), or that you will be sharing net profits? 

Think about what the end game is here - 5, 10, 20 years from now.  What sounds fair when everything is paid off?  How much time do you think property management will take?  Will / should anyone else have an interest in the property (SO’s relatives?).

There are lots if ways to structure this, once you decide what is fair.  Also consider revisiting what us “fair” periodically - as your job gets busier, or SO’s job, or new property laws, or ….  Matbe think anout “buyout” terms should you decide to split up for any reason.

[monstermonster]

I have personally had a judge in Multnomah County throw out a prenup that was drafted by an attorney licensed to practice law in Oregon. You (or your spouse) really want to find someone who actually litigates these contracts on the backend.

oh, good to know. hoping we won't ever have to deal with litigating any sort of separation, but want to be prepared.

We're considering putting the property in a trust as well, which at least would help with some probate concerns and might make things work a little more fairly.

[PDXTabs]

I have personally had a judge in Multnomah County throw out a prenup that was drafted by an attorney licensed to practice law in Oregon. You (or your spouse) really want to find someone who actually litigates these contracts on the backend.

oh, good to know. hoping we won't ever have to deal with litigating any sort of separation, but want to be prepared.

Yup. Along those lines, having a bad pre/post-nup is in some ways worse than having no pre/post-nup at all. Because then you spend five figures arguing about it before it is thrown out. My case, when considering both sides, probably spent more than $30k litigating the bad prenup. So you want it to look so iron-clad that no one in their right mind would even think about litigating it (but some still do). That's not legal advice, just life advice.

Along the lines of life advice, make sure you have language about discovery and fees in the contract. One of the most painful parts of my divorce was dredging up old documents from banks to send to the opposing side. I spent dozens of hours doing it to produce hundreds of documents that in the end did not matter at all, but they were being jerks and had the legal right to ask for all of those documents.

[iluvzbeach]

I am in the camp of not feeling like your current setup is benefitting you financially much at all.  Rather than a 40/60 split on rent and 50/50 split on other expenses, why not split it according to the percent of income you each have?  If your SO is making 700K per year and you are making 60K, why not have them pay 91% of all expenses and you pay 9%?  Heck, you could even be super-generous and pay 10% of expenses and they pay 90%.  Even though you are saving half your income today, that is not the point.  Based on what your SO is making, I'm sure they are able to save a considerable $$$ amount more than you make even after taxes.  I know you mentioned independence in one of your responses above and, trust me, I'm a big fan of independence, but please consider that your current arrangement doesn't not make you nearly as independent as you might think.  You'd be far more independent if you went to a 91/9% split on expenses and were able to save far more than you currently save today.

I think an iron clad post-nup (as you've suggested) is in order and I like the thought of something that gives you an increasing percent of equity each year, up to a maximum of 50% over time.

With regard to your comment about being paid an hourly rate for your contributions to the property and then contributing those funds to a retirement plan of sorts, don't forget that those funds could be subject to a 50/50 split in the event your marriage doesn't work out.  So, that doesn't necessarily protect you much at all, or at least not as much as you might initially think.

Best wishes as you continue to figure out how to make changes to your finances.

[charis]

I can't even wrap my head around why either of you allow this situation. Why do you think you'd be anymore dependent on your spouse if he paid a larger share of your shared expenses? You'd be far better off financially in case of a break up if you saved your income and your spouse paid more for everything else. I make a few times my spouse's salary, which is similar to yours. He saves three quarters of it in retirement accounts and the rest goes to our joint account. He also has a fully funded IRA. That's most of his salary. You can't tell me he is better off or financially safer paying 40% of our housing costs and splitting other expenses.

[G-dog]

No one asked for advice on their marriage or whether to keep their finances separate - so can folks stay on track rather than try to argue about elements that are not the focus of the OP’s question?

[monstermonster]

Thanks G-Dog! People seem to have a lot of strong opinions - I said we're both happy with the current situation, so I don't think we need to litigate our current split we've happily done for 7 years. Asking for creative legal/financial solutions.

We're not going to merge finances and we're both perfectly happy with our current arrangement and feel that it is fair, we don't need to argue over the current situation. Having my SO pay 91% of my housing expenses is a no-go for me, and we don't need to discuss how that make you feel. It's not *your* relationship.

The question had more to do with how to *keep* the finances separate once we're inhabiting shared marital property. I'll legally have rights to the property (and it will be a TOD account anyway) and we've got to figure out a fair way of protecting both of our interests in a way that feels fair to both of us.

I didn't earn the money my SO is using to build the house, or buy and pay off the land it's on, so I don't particularly feel I have basis in the current project. I will have more basis once we're living there and I'm helping manage the other units.

contributing those funds to a retirement plan of sorts, don't forget that those funds could be subject to a 50/50 split in the event your marriage doesn't work out.  So, that doesn't necessarily protect you much at all, or at least not as much as you might initially think.

Yea, well, if my SO is getting 50/50 of my retirement upon marriage dissolution, then the property and THEIR much more substantial retirement accounts would be up for discussion. That would be a prisoner's dilemma here, and I have way fewer assets to protect than they do, so I'm not worried about the balance of my SEP-IRA. No judge would reasonably come for my retirement with a QDRO with a spouse with assets that are 20x mine. maybe they would if they showed I never paid for anything during my marriage though, huh? 😂

  But, Maybe you get increasing interest in the property over time as you manage it?  Maybe you start with 10% ownership.  Maybe you have 0% ownership, but 20% net profit? 

Are you thinking that if you have a share of the assets, you have a similar share of the liability (gross financials), or that you will be sharing net profits? 

Think about what the end game is here - 5, 10, 20 years from now.  What sounds fair when everything is paid off?  How much time do you think property management will take?  Will / should anyone else have an interest in the property (SO’s relatives?).

There are lots if ways to structure this, once you decide what is fair.  Also consider revisiting what us “fair” periodically - as your job gets busier, or SO’s job, or new property laws, or ….  Matbe think anout “buyout” terms should you decide to split up for any reason.

Yea, I think there could be a lot of advantages - mainly to our taxes - to structuring it as part of an LLC or a limited partnership. LLCs are how we structure most of our businesses anyway. Since we're MFJ anyway, all the profit/loss will be passed to our shared joint tax return, so essentially I'd receive a similar benefit.

But if we did divorce, I could still be a partner in the LLC and still have some level of interest and profit in the property without having to physically live there, and would have limited liability if the property failed and wouldn't be risking my own assets.

The big reason to do the SEP-IRA is that if there are profits in the LLC, this is a way to shelter more money from taxes, and have money in my name that isn't tied up in a physical object.

We can get around probate with a TOD, but the LLC and a trust wrapper could possibly handle a lot of things.

[charis]

My apologies, I was commenting on your being terrified of being dependent on your spouse, which I think is exacerbated  by paying 40%-50% of expenses for someone who makes 700k when you make 60k. It's hard to ignore something so grossly disproportionate as a the higher earning spouse in my relationship. But I'm out of conversation now.

[monstermonster]

My apologies, I was commenting on your being terrified of being dependent on your spouse, which I think is exacerbated  by paying 40%-50% of expenses for someone who makes 700k when you make 60k.

I pay $615 per month in rent and half of the utilities in a 2 bedroom apartment, less than I would pay if I lived with 3 roommates. We don't have a car, kids, or coke habit-  you're making this out to be like I spend a bananas amount of money relative to them. We both spend less than $25K per year total in personal expenses.  I save half my income.

I personally do not feel comfortable with someone, spouse or not, paying all of my living expenses. I need to know if anything happened to my SO or anything bad occurred, I would not have to change my lifestyle and I would be fine. We both pay for our own hobbies and projects ourselves. This means we both get to choose how much we value something based on our own utility for it. To me, that is supremely fair.

My SO pays all the taxes and other costs that are related to them making a ton of money. At some point, they will stop making bananas amounts of money because they'll FIRE, and I will likely be making more money. If we firmly establish things in a way that feels fair with the property now, there's a clear framework to fall back on if things flip.

[charis]

My apologies, I was commenting on your being terrified of being dependent on your spouse, which I think is exacerbated  by paying 40%-50% of expenses for someone who makes 700k when you make 60k.

I pay $615 per month in rent and half of the utilities in a 2 bedroom apartment, less than I would pay if I lived with 3 roommates. We don't have a car, kids, or coke habit-  you're making this out to be like I spend a bananas amount of money relative to them. We both spend less than $25K per year total in personal expenses.  I save half my income.

I personally do not feel comfortable with someone, spouse or not, paying all of my living expenses. I need to know if anything happened to my SO or anything bad occurred, I would not have to change my lifestyle and I would be fine. We both pay for our own hobbies and projects ourselves. This means we both get to choose how much we value something based on our own utility for it. To me, that is supremely fair.

My SO pays all the taxes and other costs that are related to them making a ton of money. At some point, they will stop making bananas amounts of money because they'll FIRE, and I will likely be making more money. If we firmly establish things in a way that feels fair with the property now, there's a clear framework to fall back on if things flip.

I gotcha, but my spouse is more financially independent and secure by saving more of his income than paying a larger percentage of housing, which would contribute not one bit to how independent he is financially. He's not more dependent on me because I pay more toward our housing and groceries, he's less dependent because he's saving and growing more money in investments in his name. This works because, like your situation, we are both frugal and can afford to live on his salary if I left my job. So I'm not subsidizing his lifestyle, but I do recognize the disparity and prioritize his personal savings so he's on solid ground no matter what happens in the marriage. His lower income is no less of a contribution to our marriage and I guess I just want things to be relatively equal, even though I'm the higher earner (I also came from a wealthier family so I benefitted from a situation that my spouse was not privileged to have, so maybe that's why I feel more strongly about an equal dynamic financially).

Just to be clear, I made no assumption on your spending, relative to your income or otherwise. It never crossed my mind for someone saving half their income.

[monstermonster]

I'm glad you found something that works for you, and appreciate the input on a similarly financially unequal situation. It sounds like you have shared finances. We do not and neither of us want to. We're not looking to change the structure of how we split our finances, and I am not comfortable with someone else paying my living expenses. Every couple is going to be different.

We're just trying to figure out a tax-advantageous and fair way of splitting our interests in a property that only one of us (currently) has the legal rights to. I am not interested in taking on a 1.7 million dollar debt, and I don't want to pay rent to my SO that is disproportional to my means with no equity gained in the property.

It's looking like an LLC wrapper might make the most sense. Spousal LLCs are not a disregarded entity in our state (it's not a community property state), and we can set up a legal framework for my interests that is fair for time and attention put into the other units. Additionally, we'll be able to put money in sep-iras for both of us.

[PDXTabs]

We're in Oregon and therefore I have no claim to the rental property as it's from before marriage (fine with this). They paid off the mortgage on this house and pay all expenses related to it.

I wanted to circle back to this. Although it is technically possible to rebut the statutory presumption of equal contribution for the gains in your spouse's business, in practice courts seem loath to do so. The relevant supreme court case is Massee and Massee. I'm not a lawyer and this isn't legal advice.

[Imma]

Separate finances are very inpopular here on MMM. I feel the same way as you OP, I felt like that when I had a very low income and my partner's income was "just" low and I still feel like that now I earn a high income and my partner earns an average income. I feel like a grown up adult should pay their own way in life (with obvious exceptions, but that should be the goal for me). Our lifestyle depends on the lowest income. On the flip side, I also don't get why the lower income earner would be expected to do more unpaid labour in the home. My partner earns less than I do but that doesn't mean they should do all the cleaning. We each pay half of food and bills and do half of the cleaning.

We had at one point a similar plan as you guys, although it didn't end up happening and we're in a different country. We also came to the conclusion that an LLC was the best option, where sweat equity would lead to the non-money contributing partner slowly earning a % of ownership in the business. Obviously this would be dependent on the relevant law where you live. But say the value of 1% of the business would be worth 500 hours of work at a fair rate, then with every 500 hours of work, the non-money contributing party would receive 1% of shares in the business.

[waltworks]

Bluntly, if there aren't kids involved, the stakes are low. You can easily live on your income alone if needed, right? And you refuse to be "dependent" (meaning benefit from your relationship financially) on your spouse in any way?

In that case, you are basically business partners here, in that you both want to be able to walk away clean/divide things according to a preset plan if something goes wrong. Form an LLC and decide on your ownership percentages and go from there. You can rent your share of the space at market rate and receive whatever portion of the rental proceeds you are entitled to. Easy peasy.

-W

[2Birds1Stone]

If your SO is making 700K per year and you are making 60K, why not have them pay 91% of all expenses and you pay 9%?  Heck, you could even be super-generous and pay 10% of expenses and they pay 90%.

I just laughed so hard that coffee shot out of my nose! Thank you for the comic relief on this dreary Monday morning.

If high earning spouse suddenly loses income (voluntarily or not), does mm suddenly cover 100%? This is a very slippery slope that could lead to not only resentment but in some cases a big unconscious power imbalance.

[Sibley]

Going to agree with waltworks here. Get a good lawyer, structure the legal side as you wish a LLC or similar, and make sure that the fact you're legally married doesn't impact it. You'll need a good lawyer because the marriage starts to take precedence over everything else. It would be way easier for you too keep everything legally separate if you weren't married.

I don't understand why you want to do your finances like this but you do you.

[monstermonster]

If high earning spouse suddenly loses income (voluntarily or not), does mm suddenly cover 100%? This is a very slippery slope that could lead to not only resentment but in some cases a big unconscious power imbalance.

Yea, my SO has had years where they have earned the same as me because they were semi-FIRE'd. Splitting it the way we currently do makes up feel safer.

I wanted to circle back to this. Although it is technically possible to rebut the statutory presumption of equal contribution for the gains in your spouse's business, in practice courts seem loath to do so. The relevant supreme court case is Massee and Massee. I'm not a lawyer and this isn't legal advice.

This was very fascinating read, thank you for the link. I do think the fact that the spouse was primarily homemaker and had worked uncompensated for her husband's business had influence on the court's opinion. Additionally, it looks that it being a "short term marriage" had an influence. Also, I will note that these rulings only happen if you want to fight. The court usually lets two childless adults decide how to divide assets in marriage dissolution, even if not fair,  if they both agree. In this case and all the litigated cases, someone does not agree.

For my spouse's other businesses/investments, they are a limited partner and not a managing director, so I have no contribution to those businesses, it is only capital pledged prior to the marriage that forms their interest in the business. it is unlikely I would have any statutory presumption in those investments. Additionally, some of those investments are 3(7)1 private funds, where I would not a be an accredited investor able to have an interest in those businesses without the joint marital assets (although I actually might be soon, once I pass my series 65 and become an RIA, but based on education not on assets).

[monstermonster]

Going to agree with waltworks here. Get a good lawyer, structure the legal side as you wish a LLC or similar, and make sure that the fact you're legally married doesn't impact it. You'll need a good lawyer because the marriage starts to take precedence over everything else. It would be way easier for you too keep everything legally separate if you weren't married.

Thanks! We have a sit down with our lawyer scheduled who usually handles these things, but I wanted to go in with a clear idea of what things I'm asking for. This came up because we're about to close on the loan for the mortgage, and I'm requiring my spouse to get the ducks in the row to protect me (like getting life insurance and own-occ disability insurance for the amount of the mortgage).

We didn't have any legal issues with keeping things separate because all the investments and property were prior to marriage and we're a marital property state. But it gets more complicated once the new property is built (because built within the marriage), and we move into the triplex because then it becomes the marital home. In addition to living there, I'm clearly participating in the planning, budgeting, and design of the triplex. Additionally, it being an income-earning property that I intend to work on means that I will be materially participating in the business.

From a financial perspective, my SO saves ~$40,000 on taxes by being MFJ, I qualify for their employer health insurance by being legally married (otherwise my SO would've had to pay taxes on the employer-paid portion for me if we're just DPs). We mainly got married because my SO was able to apply for EU citizenship (via my heritage) at the same time as me, which will have significant long-term upsides including possible lower health care costs. But it does make a lot of things easier as far as beneficiaries for estates and avoiding probate for certain things. Not to mention the right to like...visit one another in the hospital.

Additionally, if social security doesn't fall apart, I get their extremely high quarters of social security as a spousal benefit. Because most of my quarters of SS are not at the max rate, this has a big benefit to me.

The downsides for me is that previously I qualified for certain means-tested things (like scholarships for grad school, copay assistance for my medication, a Roth and Traditional IRA, the stimulus) based on my normal income that I no longer do being married to a Rich Person^TM. In those cases, usually, my SO will make me whole.

[scantee]

If high earning spouse suddenly loses income (voluntarily or not), does mm suddenly cover 100%? This is a very slippery slope that could lead to not only resentment but in some cases a big unconscious power imbalance.

Yea, my SO has had years where they have earned the same as me because they were semi-FIRE'd. Splitting it the way we currently do makes up feel safer.

Is ownership and management of the triplex only feasible with your spouse’s high income? I guess I’m wondering what happens if his income drops to yours again and whether you’ll be able to continue to afford your joint lifestyle.

I agree with others that the LLC is probably the best way to go. For me that would feel too transactional so another arrangement you could consider would be to trade your management of the property for what would be your half of the market rent for the unit you live in. So you have no home expenses but provide your time to cover that. That frees up more your income for your own savings and investments, allows him to absorb the home costs with his enormous income, gives you a way to provide in-kind payment for those costs, and avoids making your relationship overly bureaucratic.

[Villanelle]

Will you be doing more of the property management work than your partner?  If so, by approximately what %?

I think I'd likely come up with a set amount as your starter share in the rental business.  Let's say that's 10%.  Then each year you add some %, until you you get to whatever total percent seems fair.  (Since he owned the land before you came along, it seems like it should never be 50%, if you are trying to keep things as blindly fair as possible.) I'd base that annual "vesting" mostly on how much of the PM-ing you are doing.  You could even figure that out somewhat mathematically.  It seems most PMs charge 10%, so if you are doing 90% of the PM work, then take 90% of the annual rent.  Figure that is the approximate dollar amount of equity you are buying annually with your labor.  If that, as a % of the property value seems about fair, that would probably make sense for the annual stake in the property that you get. 

Then continue to pay your 40% of the rent. 

[monstermonster]

Is ownership and management of the triplex only feasible with your spouse’s high income? I guess I’m wondering what happens if his income drops to yours again and whether you’ll be able to continue to afford your joint lifestyle.

Our joint lifestyle, exclusive of housing costs, is around $25K a year for two people, so even just passive investments and other businesses would be able to cover that (not all of my SO's income comes from day job). But no, if we were on just my income, we couldn't pay the mortgage for all 4 units out of my income alone. There will probably be about $3,000 in property taxes per month alone when the property gets reassessed.

We're planning for some vacancy in the other units, but generally, the mortgage should be covered mostly by the three other units if we're renting them at market rate (the plan is to rent one as a short-term rental unless regulation changes, as the ADU has been rented for years). Even being VERY conservative with vacancy rate and lower than market rent, our portion for the mortgage (inclusive of property taxes) would be about $2000 per month, which we can both handle from our income alone.

My SO has a 1 year of living expenses liquid fund, and there's a separate 6-month cash reserve for the property to cover mortgage in case of emergency.

However, my big fear is my SO getting disabled and unable to work a fancy job in their field when we have an $8,000 mortgage - this is why I'm requiring my SO to get own-occ disability insurance equal to the entire mortgage and term life insurance (currently they don't have life insurance because with no dependents and no debt and significant assets, it's fine - but now they do). It sucks to spend $200 a month on insurance, but having to pay an $8000 mortgage without a super high paying day job as backstop gives me nightmares.

The plan is for my SO to keep the high-paying day job until the mortgage is paid off, hoping to accelerate that payofff and have it done in ~5 years. This will allow for a lot more choices. As long as super high paying day job keeps existing.

[monstermonster]

Will you be doing more of the property management work than your partner?  If so, by approximately what %?

Yes, very likely a significant amount more, but we won't really know until construction is done (mid 2023). We're hoping to do short-term rental again on one of the units (it's been designed to be good for that, and the ADU was a short term rental for years) and I would like to be the manager for that as one of my dreams is essentially running a hostel. I'm also the person with the financial analytic background of the relationship who likes to make the cash flow charts.

There's regulatory risk with short-term rentals, so the fact that we previously had a short-term rental permit on the ADU isn't guaranteed. So if it become long-term tenants in all three units, there will be a lot less property management work than if I'm turning over the units regularly on the short-term rental.  So essentially, we don't know what the workload will be like until then.

Then continue to pay your 40% of the rent. 

Currently we rent from a property management company and split the rent 40/60. When we move into the triplex, there is no "40% rent" to pay as there is no rent, just a mortgage that is covering a total of 4 units. One option would be determine fair market rent for the 3 bedroom we'll live in, and have me pay a percentage of that. But since I'm not on the deed or mortgage, I'm not stoked about paying $1,360 toward the mortgage (40% of $3400, a comparable rent). that seems not fair.

Additionally, it's even a little more complicated because one of the bedrooms will be a home office for our respective businesses,  and we both currently take a home office deduction based on square foot. But those schedule C's end up going up on the same tax return, and would be calculated from the mortgage, not rent. So I pay rent, but perhaps a portion is paid via my business so I can deduct it?

Nice and complicated lol.

[tygertygertyger]

Posting mostly to follow, as this tracks along one potential life for my partner and myself. (Unmarried, we own property together but had at one point considered whether we wanted to be landlords... and I do pay the employer-paid portion of his health insurance as DPs)

I remember your SO had wanted to build this for a long time, how exciting that you are both making tracks to make it happen!

[monstermonster]

avoids making your relationship overly bureaucratic.

I think you might not realize that my love language is paperwork and spreadsheets 😂

[monstermonster]

Posting mostly to follow, as this tracks along one potential life for my partner and myself. (Unmarried, we own property together but had at one point considered whether we wanted to be landlords... and I do pay the employer-paid portion of his health insurance as DPs)

I remember your SO had wanted to build this for a long time, how exciting that you are both making tracks to make it happen!

Thanks! We're excited  - it's been SO MANY twists and turns in the zoning and design and permitting process (we actually started a youtube channel to document the process since it is incredibly hard to build a triplex in central portland, fun fact). It's been almost 6 years in the making now - but the permits are approved, we're a month out from the construction loan closing, and the existing house has now been torn down! If you DM me, I'll share the youtube channel and you can be dissuaded from building something, lol.

There's a ton of ways in which having unequal income but financially separate really makes getting married a pain in the ass, because the richer party is almost always is benefiting more under our current tax system. There's also a lot of stuff I don't qualify for anymore because of the joint income.

I think if you added it all up, we're getting more benefits from the marriage but - one advantage of staying unmarried is it's easier to pick or choose (like your SO could get insurance off the exchange and get a subsidy if you're not married, but once you're married and they qualify for coverage through your work - regardless of affordability to them - they can't access subsidies). We got rather hastily covid-married due to the timeline for applying for EU citizenship.

[PDXTabs]

I wanted to circle back to this. Although it is technically possible to rebut the statutory presumption of equal contribution for the gains in your spouse's business, in practice courts seem loath to do so. The relevant supreme court case is Massee and Massee. I'm not a lawyer and this isn't legal advice.

This was very fascinating read, thank you for the link. I do think the fact that the spouse was primarily homemaker and had worked uncompensated for her husband's business had influence on the court's opinion. Additionally, it looks that it being a "short term marriage" had an influence. Also, I will note that these rulings only happen if you want to fight. The court usually lets two childless adults decide how to divide assets in marriage dissolution, even if not fair,  if they both agree. In this case and all the litigated cases, someone does not agree.

You are entirely correct that adults can divide assets however they choose and it will never get litigated if they agree. The short term marriage mentioned in the ruling has to do with the rescission argument in York. The longer the marriage the more likely the court is to share gains. You are correct that the fact that she contributed to the business contributed to the division of assets, but I don't think that the homemaker part did. My understanding is that if you are contributing money to the household makes it easier to argue that you contributed, not harder. But every case is unique and your entirely separate accounts probably matter.

I'm really not trying to tell you what to do, only to warn you just how unpleasant it is to litigate a divorce in Oregon with the idea that it isn't a joint property state when in practice it is far more fuzzy. I strongly support adults of sound mind not resorting to the courts to solve their problems. None of my writing is legal advice, only a warning about how depressing it is to end up in an Oregon divorce court with the idea that you separately titled property will be kept separate.

[monstermonster]

On the flip side, I also don't get why the lower income earner would be expected to do more unpaid labour in the home. My partner earns less than I do but that doesn't mean they should do all the cleaning. We each pay half of food and bills and do half of the cleaning.

Same, I feel like there's a lot of gendered ideas that play into financially unequal DINK relationships, and that means there's a presumption that an unequal portion of unpaid domestic labor will fall to the lower-income partner.  Which, due to a number of societal factors, is often a woman.

We split household chores according to ability and willingness - I like doing deep deep cleans, my SO is more one for the routine cleaning. We both cook about equally, but I don't have a lot of dexterity in my hands due to RA, so anything that involves sustained gripping or fine motor movement falls to my SO. But also, it's sometimes a bit of a moot point, as both of us travel solo frequently and the other is often home alone doing 100% of the chores for long periods of time. We're just two adults and a cat, so there isn't that much household duties.

My SO is more likely to buy durable household goods when they're expensive and pay 100% of the cost, because I quite simply won't spend $200 on a trash can (but omg it is an amazing trash can) or $200 on a coffee maker. When we buy groceries or other household goods (air filters, dishwashing soap) we split shared things 50/50 and each pay individually for the things we eat separately (i.e. I don't eat dairy or alcohol, my SO doesn't pay for my vegan cheese and I don't pay for their half & half).

We're both absolutely terrible at things like remembering family birthday and buying gifts, so pretty much we collectively fail on that front.
 

[Sibley]

Re the birthdays and stuff, I put them on the Outlook calendar. 2 week reminder or whatever and I'm golden. I just have to pay attention to the pop up!

Hope everything goes well.

[MarciaB]

avoids making your relationship overly bureaucratic.

I think you might not realize that my love language is paperwork and spreadsheets 😂

Mine too! And may I say that the really modest amount you're paying for rent/utilities is a total screaming deal here in the Rose City?

Also - will you have a separate bank account for the property? I would recommend that if you don't have one already, it always makes tracking so much easier, and the papertrail(s) are much clearer if they're not mixed in with other unrelated stuff.

[Dicey]

MM2, it is so good to see you posting here! You have been missed!!!

I don't have much to add, except to tell you a story I just learned about an acquaintance. It might be relevant in your case. Even if it isn't completely applicable, it's still a nice story.

My friend had a custom bridal salon. The building she rented had two large apartments behind it. That's kind of confusing, so I'll rephrase. There was a large two-unit apartment building and the owner/landlord build a shop in front of one of the units. My friend moved her growing business there and operated it successfully for many years. The LL also owned the building next door and his business was there, in a similar set-up. The LL's wife got sick, so my friend helped manage his business for him for several years, because she was right next door. When his wife passed away, he ran the business for a few more years, then retired and rented out the storefront. When he eventually passed away, she discovered he had given her a life interest in her shop and the two apartments behind it. She collected the rents on the two apartments for years. When she retired, she rented out the shop, too. These rents have provided her with a very nice income in retirement. Upon her passing, the property will go to Shriners Hospital, per the original owner's instructions. The value of his gift to the Shriners has more than doubled, and she has lived a very nice life on the additional income in the interim. I love it when people give creatively!

[monstermonster]

MM2, it is so good to see you posting here! You have been missed!!!

I don't have much to add, except to tell you a story I just learned about an acquaintance. It might be relevant in your case. Even if it isn't completely applicable, it's still a nice story.

That story was such a delight, thank you for sharing. Good to see you, too! I've been primarily on the OMD forums, but this seemed like one for the MMM forums.

[monstermonster]

Mine too! And may I say that the really modest amount you're paying for rent/utilities is a total screaming deal here in the Rose City?

Our rent will finally be going up end of July, but we have a 2bedroom (one is our offices/my business shipping center) and we've lucked out where everytime we have a lease renewal the past 5.5 years, it's been a renter's market and our prop management company hasn't raised our rent. So currently $1650 for a 2 bed, plus pet rent and utilities. Quite a good deal. That being said, I didn't pay over $300 in rent in portland for the first 8 years I lived here so...

Also - will you have a separate bank account for the property? I would recommend that if you don't have one already, it always makes tracking so much easier, and the papertrail(s) are much clearer if they're not mixed in with other unrelated stuff.

Yea! We've always had, because it's been operated as a business as we've never lived in it and it's been tenants and an airbnb. The house has its own LLC already, I'm just not currently a member of the LLC. SSO has been saving 100% of their day job salary for the past 5 years and putting what isn't going into retirement is going into a fund for this project. Considering SSO just had to pay $80,000 towards the building permit in cash, a good choice.

[monstermonster]

Re the birthdays and stuff, I put them on the Outlook calendar. 2 week reminder or whatever and I'm golden. I just have to pay attention to the pop up!

Ha, my problem isn't remembering them - it's that I'm appalling at gift-giving, etc. wtf do 5 year olds like. what do 60 year olds like. why am i not good at a craft or something.

[Dicey]

MM2, it is so good to see you posting here! You have been missed!!!

I don't have much to add, except to tell you a story I just learned about an acquaintance. It might be relevant in your case. Even if it isn't completely applicable, it's still a nice story.

That story was such a delight, thank you for sharing. Good to see you, too! I've been primarily on the OMD forums, but this seemed like one for the MMM forums.

You guys are missed. Please share that we'd love to hear updates from you former MMMers. We're still rooting for all of you ❤️.