Okay. You know you want to share your life with this person, and it’s time to find a place together to call home. But, for whatever reason, you aren’t ready to tie the knot just yet. You’re in love, but don’t be blinded by it. So, how do you make a wise business decision while honoring your relationship?
Most of us believe in true love, but we must be practical
Romantic couples have become increasingly comfortable with living together before or instead of marriage. This trend is tied to the fact that couples are getting married later in life than ever before. Many young adults believe that living together first may help determine whether they can have a successful marriage.
Interestingly, 64% of couples between 18 to 44 prioritize owning a home together over being married; and about 9 percent of homeowners in the United States are unmarried couples.
So, how do you go into home ownership, protecting your legal rights while remaining optimistic about your future together?
Hope for the best, and prepare for the worst
Purchasing a home with someone you are not married to can be risky, and both parties need to understand what they are getting into. Discussing your income, debt, and financial obligations with your partner may be uncomfortable. However, it would be best if you were transparent so you each understand your risk and liability.
Before entering a joint financial obligation, you must have a complete picture of your partner’s financial condition. For example, if you choose to have a mortgage with your partner, their credit score may affect yours, and you may become responsible for their portion of the debt if they default.
It is also wise to have a legally binding contract if your partnership does not last, something like tenancy in common agreement. Instead of worrying about how to split up when you own a house together, you’ll be glad you planned ahead.
When purchasing your home, take the extra step of creating a fair agreement for how you will handle the property if you break up. Then, instead of sleepless nights googling, “bought a house with boyfriend now breaking up,” you can rest easy.
Who owns what?
Couples can choose the type of ownership arrangement they will enter when purchasing a home together. However, looking at the different types of ownership helps understand how they apply to your situation.
1. Joint tenancy
If you have joint tenancy ownership, you will have equal rights to the property. If either of you dies, the other will inherit the whole property. If you split up, you can buy the other’s interest, or split the proceeds.
2. Tenancy by the entirety
Tenancy by Entirety (TBE) applies only to married couples. Additionally, it is not an option everywhere, as only about half the states recognize this type of property ownership.
In this ownership classification, the spouses each own 100% of the property rather than each owning 50%. So the property would not go through probate if either spouse dies, and each spouse has survivorship rights. The property is also handled differently in the case of divorce.
3. Tenancy in common
Tenancy in common is usually the best option for unmarried couples. With this option, you each own a specific share of the property. That could be 50/50, 70/30, or whatever you agree upon.
With Tenancy in Common, you should have a legal agreement stating how much each party has contributed to the ownership of the property, as well as each person’s obligation to pay the mortgage, maintenance, and other expenses. Tenancy in common agreement will also specify what percentage of the legal partition each tenant possesses and who would inherit the tenant’s shares upon death.
You can download and use a Tenants in Common Agreement template to make sure you cover all the relevant issues. Since it is created by professional attorneys and has been practice proven, it can help you avoid common mistakes and protect the right of both partners. You can also easily customize the template of tenants in common agreement for your specific needs and considerations.
What if the breakup has already happened?
If you purchased a home together and then broke up, without prior signing of tenancy in common agreement, you’ll need to know your options. Read on to determine how you should handle the house you own with your ex-partner.
1. Buy out your ex’s share
If you want to stay in the house, you’ll need to determine whether you can afford the mortgage alone and whether your partner is willing to sell their interest.
You will want to calculate the contributions each of you has made and the equity in the property to determine a “buy-out” price. If there is little or no equity, you may be tempted to take over the entire mortgage obligation in exchange for living in the home. However, doing so is usually not the best option.
The cleanest and most straightforward way to buy out your ex’s share is to finance the home solely in your name. Doing so relieves your ex of the legal obligation to pay the mortgage if you default.
2. Sell your “love nest” and split the proceeds
The simplest way to deal with the property may be to sell the house to a third party and split any proceeds after paying off the mortgage.
Of course, this option assumes that neither of you wants to continue living in the property. Also, you’ll need to agree on matters such as the choice of realtor and a list price.
3. Attend the mediation
If you and your ex-partner can not reach an agreement, it may be best to seek mediation. Handling property after breaking up can get messy, but a competent mediator can help you resolve the contentious issues fairly and equitably. You don’t even need to be in the same room with your ex for mediation to be effective.
Although hiring a mediator is an expense, a successful mediation can save you a lot of money in the long run.
4. Initiate court proceedings
If you and your ex can not even reach an agreement to attend mediation, you will likely need to file a property partition suit. Whether you are married or not, you do not have to own property with another person if you do not want to. You always have the right to ask the court to partition the property fairly.
In a partition case, you will present your evidence, and the court will usually either order the real estate sold or call one of you to buy out the other’s interest. During this proceeding, you and your ex will also have the chance to bring any claims you have to recover for unjust enrichment, breach of contract, joint venture, or any other claims related to the property.
To proceed with a court action to divide your property, you should seek the advice and representation of a competent attorney in your area. You can find a lawyer near you specializing in property partition or family law. They will help you understand your rights and successfully guide you through the property partition process, whether you attend mediation, initiate a court proceeding, or even if you need additional help entering or enforcing the tenants in common agreement.
Unmarried couples increasingly prioritize owning a home together over marriage, but they should be aware of the risks and liabilities of joint financial obligations. It is essential to be transparent with your partner and create a legally binding contract to protect both parties if the relationship does not last.
To ensure you are protecting your rights, it is best to seek the advice and representation of a competent attorney online or off. If you need to create a Tenants in Common Agreement, you can download and customize a template to cover all relevant issues.
Author’s bio: Karyna Pukaniuk is the Head of Legal at Lawrina. She is a passionate legal professional with extensive experience in corporate & tax structuring, personal data protection, and IP protection. She led and backed the smooth operation of the legal team and accompanied several different projects at the same time. Now she is actively involved in developing Lawrina, a living ecosystem for legal professionals and their clients that changes the experience of law.