In a divorce, the shared home often is sold, and the profits are split between both spouses. However, as an investor, if you have a large real estate portfolio to your name, you may have more to consider: If real estate is your business, how do you protect your assets during a divorce? We've created a guide on the subject with three potential ways to try and keep your real property safe and sound.
Consider buying out your former spouse
Here, the simplest option might be to simply offer to buy out your former spouse. If they aren't interested in continuing in the real estate business, it could be a viable option. In this case, you would simply hire a professional to estimate the total value of your real estate portfolio. Then, you would offer your ex-spouse a commensurate sum in exchange for their share of the ownership.
However, if you're going this route, make sure to do it through official channels. Rather than offering to write your spouse a check, ask your attorneys to draw up a legally binding agreement for this arrangement. That way, you'll have a paper trail showing your ownership if a disagreement occurs about it down the road.
Form an LLC
Another option is to transfer the assets to an LLC over which you have control as a sole manager. Notably, it's most effective if you assume control over the LLC before the marriage even takes place. In that case, the court will assume the company and its assets are nonmarital property.
That said, even if you formed an LLC before you got married, it's important not to commingle your business and personal finances while you're married. Otherwise, your LLC could end up being labeled community property. For instance, don't use personal funds to pay for a business expense, nor should you limit the salary you pay yourself in order to reinvest funds into your business.
Establish a domestic asset trust
While it's more complicated than forming an LLC, establishing a domestic asset trust can also help you keep your assets safe from division in a divorce. With this method, the property is effectively taken out of your name, but you can name yourself as a beneficiary, which still gives you control over the asset.
However, like the LLC, taking this step works best if you do it before you were even married. In that case, any property will be considered separate property. If you form this type of trust during your marriage, the court could end up deciding it's community property.
The bottom line
Protecting your assets during a divorce isn't easy. In fact, intentionally moving or selling off assets immediately prior to a divorce is often considered to be "divorce planning," which could end up hurting you in court -- the judge could end up revoking your actions and forcing you to split the asset with your former spouse.
With that said, by the time people realize they want to protect their assets, it's often too late to make a move. If you truly want to protect your real estate portfolio, your best bet is to talk to a divorce lawyer who can review the specifics of your situation and give you individualized advice.