But what if . . .?

Hello again, All,

This forum has been my most useful source of info yet! Thanks for all your input.

Now here's another questions.

We have been advised to put our IP in my husband's name, as the (much) higher income earner. I get this, but what happens if we split up down the track. I hope that doesn't happen, of course - but ya never know. Does that means he gets the IP and I get nothing?

Thanks,

Harriet:confused:
 
I am no expert and you probably need to ask your solicitor but I believe that regardless of whose name an asset is in it is still considered when dividing assets post marriage breakdown.

Cheers,
 
G'day Harriet,

If you're not considering a trust, then a way to go is to go "tenants in common" whereby you can specify other than 50/50 ratio of costs and ownership.

e.g. my wife and I own properties as 99/1% - since she has no income, I get to claim the lion's share of Tax deductions (which is fair as any costs are also paid from my earnings)

BUT, what this means is that it takes TWO signatures to sell a property !!! Gives a bit of protection to the other partner....

There are some other differences between Joint Tenant and Tenants in Common - but I'll leave your Accountant to explain those differences (one I recall is that on the death of one partner, the title automatically passes to the other if in "Joint" names - but this is handled differently if "Tenants in Common")

And I've heard similar to Simon re "marriage breakdown" situations, so likely no probs there (even if Tenants in Common?? I don't KNOW, but I would think a divorce court would ignore 99/1 ratios when apportioning "who gets what" - but check it out anyway...)


Regards,
 
Have you bought the IP yet?

If so, whose name is it in?

If you have bought it, it will cost stamp duty to transfer it. That can be big bikkies.

If you haven't, look at putting into a trust of some sort. That will give you the flexibility to distribute the income in the future as circumstances change.

Don't forget though that a negatively geared property may (should) become positively geared in the future. If your husband is climbing the ladder, and hits the highest tax bracket at the point when the property starts to become positive, he will lose out more. If he is going to retire soon, then that will be OK for him.

There's more points- but the first two questions are very important as to the answers.
 
Hiya

Family law applies. Simple but not, I get to refinance a "few".

Doesnt matter whos name the thing is in, the asset base will be split "equally" amongst parties taking into acct children etc etc

ta

rolf
 
Some answers to questions above . . .

No, we have not bought the IP yet. But when we do (soon I hope), we have been advised to take it out in my husband's name, since he is the higher wage wearner. He gets about $64K. I am self-employed; get around $30K (fluctuating).

Sorry for my complete ignorance, but what do you mean by a trust (in relation to IPs)? I don't think I have heard of this option.

Cheers,

Harriet
 
Discretionary (or family) trusts are entities which can be used to hold assets. So an investment property can be purchased in the name of the trust instead of your personal names.

This has two big advantages;
1. Asset protection. If a tenant trips over a misplaced blade of grass, and sues, the property in the trust could be lost- but the damage is limited to the property in that trust, not to your personal assets
2. Income can be distributed at the discretion of the trustee. Circumstances can vary over time, and income may be split according to the changing circumstances. Even a child may receive some income from a trust.

An excellent source for an introduction to trusts, as well as to many IP matters, is Dale Gatherum Goss’s “Tax Battles” manual- http://www.gatherumgoss.com/shopping.htm (Dale is a long time and valued contributor to this forum).

A big disadvantage is that a family trust cannot get the benefits of a negatively geared property. That’s where a hybrid trust can help- there’s been a lot of posts on that in the forum.

A negative geared property will (hopefully) one day become positive- that’s where the trust will be beneficial.
 
If you want to buy in your own name and not a trust, something you could do to protect yourself is get the solictor to write up an agreement between the two of you if you break up.

That, combined with family courts willingness to split things 50/50 no matter who owns it should give you some comfort.

This was something we looked at before we starting buying, in the end however, a trust worked best for our plan. So I never got the solicotor's letter.

Jas
 
Hiya Harriet

If one of you earns $64K, and the other $30K, then there isn't much to choose between you with regards to tax.

Tax scales for $20 - $50,000 relate to each, so there's only $10,000 at 42% plus $4,000 at 47% to consider at the present time.

Yes, if you have heaps of depreciation on the property it may be worth while messing around with ownership ratios, but otherwise if you split the net income of the property ie rental income less all outgoings equals eg $1,000 per annum, shared between two owners equals $500 per annum each, how much tax are we really talking about here?

Land tax is something to consider, but as you don't live in Victoria perhaps it is not as significant for you. By owning personally, there is a generous threshold before the tax applies. Trusts do not enjoy this benefit.

It's really a personal choice. By the time you spend the money setting up fancy trusts and then pay the extra accounting fees each year, are you really any better off? And you've lost the 'negative gearing' benefits which may have made the property a more viable investment at least in the early years.

Personally, I like to see my name on the rates notices. I can buy, sell, mortgage, rent or otherwise deal with the properties as I see fit, when I own them myself or in shared ownership with my husband.

And as for trusts and divorce, I am yet to be convinced that assets in a trust are any more 'protected' from divorce, from being sued, bankruptcy etc than if they were simply owned by the people as natural persons.

Ditto the loss of capital gains threshold and tax concessions.

However, Harriet, I am but a voice crying in the wilderness 'Bah! Trusts!'

And remember, if you go the 'tenants in common' path, you must specifically will the balance of the property to each other. How would you feel if your husband willed his share to the local football club? It has happened!

Joint Tenants can still decide upon the apportionment of earnings.
Because the situation encompasses legal (ownership of title/inheritance/securities) economic (earnings differential) and taxation (net income 'if any' becomes taxable) hasten very slowly and don't rush into any gimmicky or fashionable ownership structures. After all, what seems like a good idea in 2003 may be a nightmare in 2033, when you are reliant on the income in your retirement.

Good luck, and happy investing. It's the best fun and certainly beats doing the dishes!

Cheers

Kristine
 
Hi Harriet...

Rolf is right, it doesn't matter who's name the property/asset is in, the family court has LOOOOOOOOOOONG arms...

The court will be able to access this, and any other asset, and pool them all for distribution along the lines of your consent orders.

The other question you asked with regard to trusts really doesn't apply to this matter, since the family court can unwind trusts like a kitten with a ball of wool. It is, however, an EXTREMELY important question in itself.

You really should try to learn as much about trusts as you can, even if you don't decide to use them, it's a little like hand washing versus machine washing. You can choose to hand wash, but it's a lot easier if you know about machines. :)

Do yourself a favour, get a copy of Dale's book, if it's anything like his talk, it will be fantastic. (I am waiting for my copy!!)

anyway, I hope this helps...

asy :D
 
Hi Harriet,

If you do split up down the track I would think that your share of the IP is the least of your worries. In my case, my ex was awarded 75% of the property (although she had agreed to 50% - under a section 86 Family Court agreement - which means nothing) and 50% of my superannuation (cash up front) which left me broke.

But it made me realise that there is more to life than material assets. The only people that profit from divorce are solicitors!

Good luck.

Bazza
 
We have been advised to put our IP in my husband's name, as the (much) higher income earner. I get this, but what happens if we split up down the track. I hope that doesn't happen, of course - but ya never know. Does that means he gets the IP and I get nothing?

It does matter whose name a property is in.

A sole owner can deal with the property without the permission of the non legal owner.

If there is a divorce then courts can make orders for property held by one party. However, Just because they can make an order doesn't mean they will.
 
It does matter whose name a property is in.

A sole owner can deal with the property without the permission of the non legal owner.

If there is a divorce then courts can make orders for property held by one party. However, Just because they can make an order doesn't mean they will.

Maybe the laws have changed in 11 years ;)
Cheers,
Bazza
 
Les - do you mean that, in theory + on paper + legally, you own 99% of the properties?
In the event of divorce, would the 1% party theoretically have to fight for their rightful 50% share of the assets then?

Harriett - Some sound advice so far. I am no expert by any means but I have friends who have been through the ugliest, longest (20 years? and counting....) divorce battles. So, all I can say is, hope for the best but plan for the worst!
 
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