Advice for non-married couples considering shared home ownership

Q: My daughter is looking to purchase a home soon with her boyfriend. They are not yet married, and I would like to give her some advice on how to title the home before they get married so she is protected just in case they decide to part ways instead of getting married.

Should they hire attorneys to set up a contract between them? How should they title the home? I’d appreciate any advice you can give me.

A: Thanks for your question. Our answer depends on the stage your daughter and boyfriend are in as well as if and when they will get married. You didn’t provide that level of detail in your email, so we’ll run down the possibilities.

If they are in a committed relationship but simply plan to live together and don’t plan to get married, they should sit down and figure out what their financial plan is going forward. Some couples decide that one person or the other will be the owner of the home. Alternatively, they can both own the home.

Where the home is owned by one individual, the next question to answer is who will pay the bills. Again, one person can foot the entire bill or the non-owner can contribute to the monthly expenses of the home but will not benefit from homeownership. Often, couples who chose this option will decide what is a fair monthly payment for the non-owner to make and that cash is often contributed to a joint account from which those bills are paid.

The other option is that they decide to buy the home together, as an unmarried couple. We suspect this is really what you’re asking. And, here there is a question about timing. If they will be married within a month or two of buying the home, they might simply want to buy the home as joint tenants with rights of survivorship. This would allow either of them to become the full owner of the home should the other die. Or, they could buy the home as tenants-in-common, where each person owns a portion, either equal halves or one person could own 99% of the property while the other person owns 1%.

There needs to be a discussion around what happens to the home if they break up before they get married. They should put this agreement in writing, especially if they put unequal amounts of money into the home. This is a tricky conversation, because they need to ask themselves if they would sell the home or would one person take over the property. If one person keeps it, how would the other person get compensated for the down payment and other costs that have been put into the home? If they decide to sell the home at a loss, how would the loss be divided between them?

Crazy things happen, and people often don’t think straight when it comes to money, so putting this down in writing is the smart move. We mentioned in a column some time ago that Sam had a client who was about to get married when the boyfriend suddenly died. They had a young child and wanted a home to raise the child and other children together. They had taken title as tenants in common, so each owned 50% of the home. When the boyfriend died, he died without a will and his interest in the home went to his family and not to his girlfriend.

Unfortunately when he died, her relationship with his family turned for the worse and they insisted on selling the home and receiving his half of the home. The girlfriend and boyfriend had never discussed or put down their thoughts in writing. Each had assumed that they would be married and their assets would be for both of them. She was left without a future husband, without a home for her and her child, and with a loss from the sale of the home.

While there are many ways to take ownership of a home, most married couples own a home jointly with the rights of survivorship. However, if either person does not want their ownership interest to go to the other upon their death, they better do some planning. They should set up a short contract to detail what should happen upon the death of either party, their breakup, medical problems, financial issues and whatever other circumstances they can come up with.

If they write these things down, it will help guide them through challenges that may come up. Certainly, if they decide to own the home as tenants in common, the both should have wills that would specifically indicate who would get their interest in the home upon their death.

Here is a list of at least 10 items your daughter and her significant other should consider before closing on the home:

1 Will they own the home as joint tenants with rights of survivorship or tenants in common?

2 Will they put down equal amounts of money toward the down payment and closing costs of the home?

3 Will they have wills in place to designate who would be the owner of the home upon the death of either of them prior to marriage?

4 Will each pay equal amounts toward the monthly expenses of the home?

5 Who will get to live in the home if they break up before getting married?

6 If they break up, will they agree now to simply sell the home?

7 If the market has turned for the worse and the home does not sell easily, who will pay the monthly expenses of the home until the home sells?

8 If they break up and one of them keeps the home, will the person staying in the home be required to refinance the loan so that the non-owner/non-occupant is debt-free from the home loan?

9 When they sell the home, how will they split up the proceeds? What will happen to the cash that was used for the down payment and closing costs? How will the costs of sale be split?

10 Finally, if one of them stays in the home, will the person staying in the home be required to pay all of the monthly costs of the home until the home sells?

Having these discussions now, before they purchase the home, will be a milestone in the relationship. If they don’t know where to begin, a local real estate attorney can help.