The Moneyist: ‘I would not have been able to do it without him’: I built a property portfolio with 23 units while we were dating. How much should I give to my fiancé in our prenup?

Over the years, I have identified, purchased, and managed a rental-property portfolio across three buildings. These were purchased with my money, and I’m the sole owner on paper — but my fiancé was involved in the entire process and has helped with maintenance and renovations from the beginning. 

I would not have been able to do it without him. We recently bought our dream house so the house he owned previously will be added to our rental portfolio as well. We know that we should probably have a prenup, but we don’t know how to structure it.

In one hypothetical prenup, he would keep the new house and my second-largest investment property: $ 1.5 million value. (He would need the investment property to be able to afford the new mortgage on his own.)

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

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

I would have the right to manage the investment portfolio and to 1031 exchange any of the investment properties into a larger investment property if I so choose. In this scenario, I’d get two-thirds off the business and he gets one-third.

What are your thoughts on this? I know I’m signing a prenup that will essentially give him quite a bit of money, but I do feel that he’s entitled to something for helping me to build it. 

Property Manager

Dear Property Manager,

Smart move to put everything in writing. A marriage contract is one of the most important contracts you will sign, so everyone should have one. There are so many eventualities that couples should prepare for, including what happens to a business if you split up. Some 15% of married couples signed prenups, according to a recent poll from Harris Interactive, up from 3% more than a decade ago. That figure rises to 40% for married couples between the ages of 18 and 34. Prenups force couples to be fully transparent about their finances. 

Let’s just get one thing out of the way first. You write, “I would not have been able to do it without him.” It may felt or even been more difficult to do it without him, but I have no doubt that you would have done this regardless. The risk taking, entrepreneurial drive and good judgment in choosing these properties at the right time all lie at your doorstep. Give yourself the kudos and respect you deserve for what you have achieved. You also paid the down payment and, I presume, mortgages. That should be taken into account when doing your calculations. 

You purchased these properties with your own money, so he would not have been able to do this without you. Your fiancé provided the back-up support, but these properties belong to you. I don’t believe an equal split is fair to you, and I would be careful about signing too much of your business over to him. I hope that you live happily ever after, but 50% of marriages end up in divorce, and you may regret being so generous. Building this portfolio took a lot of years and work. Signing a large percentage over to a third party takes just a minute.

I asked Tricia Mulcare, a certified financial planner and a certified public accountant Homrich Berg in Atlanta, Ga., to weigh in on your letter. She too is more cautious.

“A straightforward solution could be to document the current values of the various properties as of your wedding date and note that if you split up, the current value of your assets at that time would be split based upon the initial ownership percentage,” she replies. “If you want to give him ‘credit’ for his help over the years with the maintenance and renovations, you could increase his percentage accordingly.”

“One way to do this could be to try to quantify the number of hours your fiancé has spent over the years on the maintenance and renovations versus how much it would have otherwise cost to hire a professional,” she adds. “Arguably your time spent identifying, purchasing and managing the portfolio also has value that could offset some of his contributions as you could have hired an outside management company.”

Mulcare also suggests outlining your plans for the rental income during your marriage. Will that be split 50/50? Or 75/25?

And what happens if you predecease your fiancé? If you owned these properties jointly, he would automatically inherit them, and your family would not see one red cent. “Regardless, it is smart to document your joint desire to maintain the properties until you both agree that it is a good time to sell,” Mulcare added. “It is also important to stipulate the plan for how you want to divide the proceeds from any sale. It likely would not hurt to further stipulate that you would be the one managing the portfolio with the right to participate in a 1031 exchange.”

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

But remember this: once you sign half of your property portfolio away, there would be no going back. 

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