Couple’s 3 homes co-owned with their kids can still be shared during divorce

Generous gifts of real estate and cash to children may still be included in the matrimonial pool and shared by the parents in a divorce, as a couple in their 70s with close to $20 million in assets found out.

While married for over 40 years, they bought two properties in London and put each of their two sons as a joint owner of each of the homes.

They also had a million-dollar home in Tokyo, which is co-owned by their only daughter. The man gave her an additional $780,000 so that she could buy her own home in Australia.

In addition to these overseas homes, the couple have three Singapore properties: their $7.5 million matrimonial home and two investment properties worth about $2 million each.

The couple are a prime example of astute investors from the baby boomer generation – today aged 62 to 80 – who used their salaries to invest in real estate to grow their wealth.

The husband, 71, started his career as an engineer before venturing into the financial sector, where he worked for over 36 years in various senior banking positions before retiring.

His wife, 70, worked in the telecommunications sector for almost two decades before she left to become a full-time homemaker. She later worked part-time as a real estate agent and ran her own art gallery.

During their divorce, the High Court found that the couple’s total assets to be shared were worth over $19 million. Almost 70 per cent, or about $13 million, was in real estate.

The court included all three overseas properties in the matrimonial pool, even though the couple’s children are co-owners.

High Court Judge Dedar Singh Gill noted that the couple were the actual owners of these properties and that their children’s names were added as part of their legacy planning to avoid the inheritance tax in those countries.

So the two London properties, which are co-owned by the wife, were counted as her financial contributions, while the husband could count the whole Tokyo unit as his.

He also had to refund the $780,000 given to her daughter to buy her Australian home because the withdrawal was made just two months before the divorce was filed.

The court had previously ruled that a spouse has to account for substantial funds spent around the time of the divorce unless the other spouse had agreed to the spending. This applies even if the money is used for the benefit of the children or other relatives.

The husband said this rule should also apply to the wife, who sold a property in London about two years before the divorce and gave over $500,000 of the sales proceeds to one of their sons.

But the judge noted that the wife did not have to account for this gift because the transfer was made way before the couple contemplated divorce, which would spark an asset division.

After looking at the couple’s overall contribution to their union, the judge concluded that the husband, being the main breadwinner of the family, was entitled to a 65.5 per cent share of their assets, or about $12.5 million, while his former wife would get about $6.6 million.

Here are three financial lessons from this case.

Keep inheritance separate

If you receive a huge inheritance from your late relatives and want to keep this for yourself, you should not deposit the money in the bank account that you use for family expenses.

Instead, you should place the money in a new bank account so that even if you withdraw or transfer some of it for your use, the balance can be traced to the original sum.

In this case, the husband received an inheritance of $1.5 million from his late mother, but he deposited it in the bank account that he had been using.

For instance, his bank statements for this account showed that there were hundreds of transactions over nine years in which funds flowed in and out of the account.

The husband acknowledged that he had transferred some income he had earned during the marriage to the account and that the funds were then collectively used for investment.

Similarly, part of the money from the inheritance was also used for his investment or spent on his family.

Although the balance of this account during the divorce was over $1.3 million, the judge noted that it would be hard to trace the whole amount to the inheritance.

“The inheritance monies had lost their character as gifts the moment the husband decided to start using them for the benefit of the family,” said the judge, who added the balance to the pool for sharing.

“The husband cannot now attempt to close the stable door when the horse had bolted there and then.”

Don’t sweat the small stuff

If you have assets worth millions, it would seem petty to fight over small sums or invaluable items that are not easily sold for cash.

In this case, the husband went after his wife’s art gallery, which she had opened to promote her father’s art pieces.

The gallery’s bank balance of about $4,500 had already been added to the pool for sharing, but the husband claimed that the wife still had a stock of 500 coffee-table art books worth $15,000.

The judge described the husband’s claim as “grasping at straws” because he did not produce any evidence to prove the existence of these books, much less the value of the books.

“Accordingly, his submission in relation to the coffee-table art books amounts to nothing more than a bare assertion, and, as such, I reject this submission,” said the judge.

Cash flow needed to maintain properties

If you are buying an apartment with a view to earning rental income, you should always factor in the costs of maintaining it so that you do not end up in deficit, especially if you cannot find a tenant.

In this case, the husband had two apartments, but only one was rented out for about $5,600 a month.

He lived in the other unit after he broke up with his wife, who continued to live in their matrimonial home.

It was not known how much property tax he had to pay for the $7.5 million matrimonial home, but he estimated that he had to pay about $110,000 in taxes and condominium management fees for three years, or about $36,000 a year.

He said he would also need to pay tax on the rental income, as well as maintenance costs for the upkeep of the two investment properties.

Of course, if there is a need for a major renovation, it could easily cost tens of thousands of dollars or even six figures.

Even run-of-the-mill repairs can be costly. The wife reportedly spent about $13,000 on various “emergency repairs” for the home she was living in.

So the lesson here is that we should always make sure we have sufficient cash flow to cover costs associated with investment assets, especially if you are planning to even buy property for your children.

Source: The Straits Times © SPH Media Limited. Permission required for reproduction.

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