Community or Separate Property

Dear Len & Rosie,

A few years ago when the housing market was down, I gave my daughter money for a down payment on a home. She has been making her mortgage payments ever since. Her name is on the title. Recently, her boyfriend moved in with her and he’s paying her rent each month and she’s using that money to pay part of her mortgage. Their relationship is looking pretty serious. I’m already anticipating a wedding. If they get married, can he still pay her rent? In other words, can a spouse charge the other spouse rent?

Terri

Dear Terri,

If your daughter's boyfriend is paying the rent on time, and he’s helping around the house, then he may be a keeper. If they get married, the situation changes. It’s easy enough for your daughter and her boyfriend to enter into an agreement by which he agrees to pay her rent, and this agreement could be extended during the marriage, but that’s not enough.

Under California’s community property system, anything earned by either spouse during the course of the marriage is community property, owned equally by both spouses. The same applies to anything purchased with community property. The exception to this rule is that anything earned with separate property (such as rental income on separate property) remains separate property.

But it gets complicated. If your daughter and her boyfriend marry, then their paychecks are community property, and whatever they buy with those paychecks is community property. So, if your daughter pays all or part of the mortgage with money from her own paycheck (or her husband’s paycheck for that matter) then part of the home becomes community property even though the home remains in your daughter’s name alone. If they divorce, there could be a battle of accountants to determine how much of the home is hers alone, and how much of the home is owned by the both of them together.  Also, if there’s no written agreement about her husband paying rent, he could argue that his payments aren’t rent at all, but are really contributions of community property to help pay the mortgage.

If the relationship is that serious, and your daughter wants to consider a prenup, she should consult with an attorney on her own (or may be with you). Her future husband shouldn’t be there because in a prenup, each person has to have his or her own legal representation. This agreement could spell out, amongst other things, that the home remains her separate property despite any contributions of community property to pay the mortgage.

There are, however, problems with this. Leaving aside the usual objection to prenuptial agreements that they are unromantic and prevent a couple from fully committing to one another when marrying, what’s in it for him? He may be reluctant to sign a prenup that could leave him with nothing if she divorces him thirty years from now after he spends his working life helping buy her a home. If there’s to be a prenup, it has to be fair, and it has to be something that both of them can agree to.

Len & Rosie