Hear from family law attorney Ashley A. Andrews of Ashley A. Andrews, APC on (1) how the interest in an investment property is split during a divorce, (2) recommendations for couples when first acquiring an investment property, and (3) examples of clean and messy splits of investment property during a divorce.

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Kiran Dhillon, SIG Commercial:

Hi everyone, welcome to our series, "Simply Multifamily." My name is Kiran Dhillon, I am a Broker-Associate at Keller Williams Commercial, and I specialize in the brokerage of multifamily and apartment buildings all throughout the Greater Los Angeles and Inland Empire areas. The purpose of this series is to highlight issues that affect owners of multifamily properties via market updates, investment insights, and interviews with trusted professionals.

Today we're going to be speaking with family law attorney Ashley Andrews with Ashley A. Andrews, APC. Ashley has close to 30 years of family law experience and has the reputation of being a strong, detail-oriented, and creative advocate. Ashley, thank you so much for being here and welcome.

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Ashley A. Andrews, APC:

Thank you so much, I'm honored.

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Kiran Dhillon, SIG Commercial:

Great! I wanted to chat with you because a common scenario that I run across in my field is that of a couple going through a divorce who owns income property together. And at that point, decisions need to be made about what's going to be done with that property. And I know you have a lot of insight into that situation, so that's why I wanted to pick your brain. But before we get into all of that, do you want to tell the listeners about the types of services that your law firm provides?

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Ashley A. Andrews, APC:

Yes, absolutely. So myself, my associate, and my in-house forensic accountant, we're divorce attorneys. We practice primarily in Los Angeles and Orange Counties. We have some cases in San Bernardino and Riverside Counties. We handle all aspects of divorce cases including custody, visitation, child and spousal support, domestic violence issues, property division, including tracing of commingled assets, separate property reimbursements, and attorney fee awards.

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Kiran Dhillon, SIG Commercial:

Excellent. So let's just get right into it. As a family law attorney, what factors should parties that are in a divorce consider when they're deciding what to do with a rental income property, such as an apartment building, that they own together?

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Ashley A. Andrews, APC:

This is a fantastic question. So, the first thing that needs to be done is determine the character of the property. California is a community property state, and the asset acquired between the date of marriage and date of separation is community property, with some exceptions. That means it's split 50/50, but those exceptions are where there may be a separate property interest in the apartment building. And that can mean a significant thing to the bottom line of property divisions. You want to ask yourself:" Is it separate or community property? What if the rental property was purchased before marriage?"

And it may not all be community, so this is a separate property exception. The separate property character will need to be determined and backed out of the community. Who does that? Well, my in-house forensic accountant does.

What if it was purchased with funds from an inheritance, the apartment building? Same separate property analysis applies, and these are scenarios that I see: purchased before marriage, purchased with an inheritance.We determine this character with the help of my forensic accountant and back-up documentation.

Whether it needs to be sold or one party should buy the other party out depends on the community property as a whole -- we don't go asset by asset. We don't go, "Okay, we have this apartment complex. The parties are getting a divorce. What are we going to do with it?" California's community property law requires a 50/50 split of assets and debts,with some exceptions.

So let's say that the apartment building is worth $5million net. And one party wants to keep it. Great, I hope they can. So maybe the other party gets the family residence worth $1.5 million net and some retirement assets worth $500,000. So, we have one party with $5 million in assets and another one with $2 million. That's not a 50/50 split, right? So to equalize that, the party keeping the $5 million apartment building would need to pay about $1.5 million to achieve that 50/50 split. Where is he or she going to get the money? Where's it going to come from? Is it going to come from other assets in the case? I don't know. Is it going to come from a loan? Plus, if the apartment building is in joint title, does he or she have the money to refinance or remove the other party's name from the mortgage? These are all things that we have to consider right away, and this is just the tip of the iceberg. It gets much more complex.

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Kiran Dhillon, SIG Commercial:

That's a great overview summary and starting point. Given all of these complications, do you have recommendations on steps that a couple can take when they are first acquiring property? Let's say they're already married, and they're acquiring an apartment building. And they have some foresight and want to avoid issues later on. Is there anything they can do to set it up that way?

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Ashley A. Andrews, APC:

I mean, first of all, you probably want to get into some couples counseling, right, and really try to work out those issues before you start adding in more assets. Really try to lay that foundation. But, being that California is a community property state, there's really nothing they can do if their property is purchased during marriage with funds earned during the marriage. Now, I'll see this quite often in my law practice where the property will be acquired in joint title more often than not. However, if one spouse wants to take title under his or her name as separate property, under those circumstances, a quit claim deed will have to be executed.

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And sadly, the circumstances for those quit claim deeds, they're not the most reliable documents because people don't necessarily say that they sign them willingly when they're in a divorce. So what can they do? You can get a post-marital agreement as well. I don't recommend playing games with the deeds. I recommend a post-marital agreement. We actually don't do those in my law firm, but there are some very, very good attorneys in the area who offer those services. And I can just say this, Ana Barsegian in Glendale is one who's outstanding at post-marital agreements.

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Kiran Dhillon, SIG Commercial:

Would that be like a prenuptial agreement, but you're doing it after you're already married?

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Ashley A. Andrews, APC:

That's correct.

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Kiran Dhillon, SIG Commercial:

So that would be one way, if you've been together for awhile and maybe things are going fine, but you're financially savvy and you just want to make sure everybody's on the same page. You could do a post-marital agreement to clear it up.

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Ashley A. Andrews, APC:

You can. And I have these consultations with people all the time, and they ask me, "Well, can I just take their name off the deed or acquire it in my name during the marriage?" Again, you can do all of those things, but generally there's a presumption of undue influence when one spouse gains an unfair advantage during the marriage. And it's really hard to preserve those deeds. So a post-marital agreement is one way. But if you're really, really having trouble in your marriage and you really want to acquire these assets and you want to protect them, then, I mean, I hate to say it, but you probably should just go ahead and file for divorce, divide up all your assets, and then buy that property down the road. It's not what people want to hear, but quite honestly, it's the cleanest way.

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Kiran Dhillon, SIG Commercial:

Got it. Can you share an example of a case where the parties owned rental income property and then things just got really messy during the divorce? So this would be a worst-case scenario, something that people would want to avoid happening to them.

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Ashley A. Andrews, APC:

Yes, so of course the matters I handle are confidential. However, let's just come up with an example. So two parties owned a significant rental property, and this rental property was purchased partially with funds from property acquired before the marriage decades ago. This resulted in along, drawn out fight to trace the funds because obviously if you have property, and again, I'm just going to use the $5 million figure, you have property that's $5 million and you acquire it during the marriage, and the other side is going to say, "Well, yeah, of course it's community property, I get 50%."

But if somehow you use separate property funds from before marriage and you want to try to trace those separate property funds out and reduce the community interest in that asset, you need to provide the documents. And it's really hard when these transactions took place years and years and years ago, it's very difficult to do it. In this particular fact pattern, if the parties had a prenuptial agreement in place before marriage and stuck with it, there would be less of a fight to trace the funds. But there are even problems with prenuptial agreements. They have to be executed very carefully. They have to comply with the California Family Code, and it's a rare occurrence when I find one that has satisfied both of those requirements and can be upheld.

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Kiran Dhillon, SIG Commercial:

And this is the scenario where you having an in-house forensic accountant would be really helpful because it's my understanding that not all, or even most, family law attorneys have somebody like that in-house. But you do, so your accountant can go back into those messy, complicated situations to help your clients.

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Ashley A. Andrews, APC:

Yes, one hundred percent, Kiran. Attorneys are not CPAs, and I don't understand why more firms don't offer this option to their clients. I mean, I'm not even going to attempt to do that. It's like a brain surgeon operating on a cardiac issue. It's totally different. So yes, it does make the process more efficient, more effective. It is a little bit more expensive upfront, but I've never been disappointed.

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Kiran Dhillon, SIG Commercial:

And can you share an example or a fact pattern where the parties did do the proper planning in terms of owning an apartment or a multifamily property and where it worked out well? So this would be something for the listeners to keep in mind and follow and emulate if they have any worries about it.

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Ashley A. Andrews, APC:

Yes, in fact, I just finished such a case, and I wish my clients were like this particular client in every case on both sides. I wish the opposing counsel was like this in all my cases. So, what we did is from day one, we got my forensic accountant involved, and typically my clients will fight me, "I don't want to do this. Do it yourself. I can do it myself." This client did not fight me on it. She let me get in, get my forensic involved, do the tracing, figure out the value of the property. We got on the appraisal right away. We did get into some appraisal wars. One party wanted it higher. One party wanted it lower. Okay, fine. You meet in the middle. And the experts and counsel met and conferred because everything was done perfectly right from the start, very aggressive, efficient manner. We were able to get the case resolved in, gosh, I think it was less than eight months, possibly even less than six. Is that a guarantee? Can that happen every time? No. Very unique set of facts where both of the parties were reasonable,respectable, responsible people, and both counsel were the same. So that doesn't always happen, but there is that possibility.

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Kiran Dhillon, SIG Commercial:

Got it, excellent. Well, thank you Ashley for sharing those examples and your insight and your expertise into this matter. There maybe listeners who have follow-up questions for you since we really just wanted to do a quick overview today. And if somebody does want to follow up with you,what's the best way for them to reach out to you?

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Ashley A. Andrews, APC:

The best way to do it is to go through my website: www.ashleyandrewsapc.com. I'm based out of Arcadia, CA. And you can either contact me via the number on the website or send me an email.

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Kiran Dhillon, SIG Commercial:

Wonderful! Well, thank you so much, Ashley. I really appreciate you taking the time today.

Ashley A. Andrews, APC:

Thank you, Kiran.

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