Buying a house or condo with someone who hasn’t put a ring on it is fraught with serious financial risks.
Plenty of laws help protect married couples when they split up and divide their property. No such legal sympathy exists for those who are unmarried and do the same.
Yet according to a widely quoted Coldwell Banker study from 2013, 1 in 4 unwed millennial couples had bought property together. The reasons were and are clear: Low-rate mortgages, rising rents, and the ability to deduct mortgage interest and property taxes from income taxes all make being a homeowner an attractive option. Some fear that if they don’t buy now, they won’t ever be able to afford it.
So unmarried couples will keep purchasing homes together, and then, sadly, many of them will fall out of love. To mitigate the financial pain of breaking up, here are some issues they should discuss before they buy.
How will you split costs?
Owning a home means coming up with a down payment and closing costs, covering property taxes and utilities, and paying repair and maintenance bills. Rarely can those financial responsibilities be split 50-50.
One person may have the savings for a heftier deposit. One may earn a higher regular salary and find it easier to make mortgage payments. One may be saddled with student debt or a low credit score. One may be skilled with tools and ready to do repairs around the house, raising the issue of whether in-kind contributions have a monetary value and what that value should be.
But if the contributions aren’t divided equally, should ownership of the home be divided equally?
How do you hold title to the property?
Certainly, one person can hold the title alone. That means the couple isn’t really buying the property together ― one person owns it and the other is essentially paying rent and probably shouldn’t be expected to cover home repairs or taxes. Of course, the couple can still buy furniture together, decorate together and call the place home together.
Two (or more) people can take title to a house as tenants in common. The percentages of ownership don’t have to be equal. Upon the death of one such tenant, that person’s share passes to their heirs, whoever they might be.
Here’s how it might work and where the problems can arise: A widowed man who has two adult children buys a house with his new girlfriend as tenants in common. They each contribute half of all expenses, including the down payment. If the man dies, his share of the house passes to his designated heirs ― likely his adult children. His new girlfriend still owns her half of the house, but she may not be able to continue living there unless an agreement can be reached with his kids. They may want her to start paying them rent. Or they might be eager to get their whole inheritance by selling the house. A tenant in common can bring a lawsuit to force a property sale if the other co-owners are unwilling to sell. The court can order the property sold, with the proceeds split among the co-owners according to their ownership shares.
Alternatively, two unrelated people can own a house as joint tenants, where the full title to the property automatically passes to the surviving partner upon the other partner’s death. There isn’t even a formal probate process.
Joint tenancy is a popular way to hold title among married couples. Unmarried couples may or may not be willing to pass that big an asset on to the other person.
What happens if you split up?
Before unwed couples leap into homeownership, they’d be well advised to draw up a legal document spelling out all the “what-ifs” and “what-we’d-do-thens.”
What happens to the house in case of a breakup? Address the issue of buying each other out and how to resolve the matter if both of you want the house. You may want a contract to automatically give one of you the first right to buy out the other at fair market value within 90 days. Or you may opt for a coin toss to decide who gets to buy out the other. (Yup, that can be legal if you agree to it.)
What if one partner wants to break up, move out and let somebody else live in the house in their place? What if one partner wants to break up, not move out and bring somebody else to live in the house with them?
What happens if one partner gets a great job offer in another city and the other partner can’t afford to stay behind and maintain the house alone, but doesn’t want to move?
If you have a child, will anything about the ownership arrangement change?
Talk these things through and get your solutions down in writing before you close the deal.
Mortgages don’t disappear when love does.
A pre-purchase contract shouldn’t cover just questions of how you hold the ownership title. There’s also the matter of the mortgage. Taking your name off the title isn’t necessarily enough to wash your hands of this chapter of your life. If you co-signed the loan, you’ll still be on the hook.
That means their credit limit ― the amount of money they can borrow from financial institutions ― could still be tied up in the house. As long as their name remains on the loan, their credit will be affected by their former partner’s ability to pay the mortgage on time. And if the one who stayed actually misses payments, the one who left is still responsible.
One suggestion is to agree in advance that if the relationship dissolves, the home will be refinanced, removing the departing partner’s name. Decide who pays any refinancing costs. What if the mortgage can’t be refinanced because, say, the original loan was granted based on two salaries and the remaining partner’s income isn’t enough to obtain a new loan? Perhaps then, you agree that the house will be sold to a third party within a fixed period of time. Spell it all out.
What happens in real life?
HuffPost talked to two unmarried couples ― one younger, one older ― about how and why they decided to buy property together. Then we ran their situations by an estate planning lawyer for some general advice.
Radio producer Evan Chung and wedding DJ Karin Fjellman began dating in 2011 and moved in together in 2013. Last year, when their out-of-state landlord wanted to sell the Chicago condo they were renting, they raised their hands to buy it.
“We really hadn’t been in the market to buy, but faced with the prospect of moving, we looked around a little bit, saw this was a good deal and went for it,” Fjellman said.
They bought the unit for about $265,000, with Fjellman, who had more in savings, contributing more money toward the down payment. They have an understanding that Chung will repay her the difference and that they will be equal partners in ownership.
Did they get a legal document drawn up laying out the terms of ownership, as her mother suggested?
“No, we didn’t,” Fjellman said. In the rush of buying, they just didn’t ― which speaks to the point, she said, that they love one another, feel committed (they’d already adopted a beagle together, she noted) and are both comfortable with their co-ownership.
“We never thought owning a place was even a possibility until the opportunity basically fell into our lap. We trust each other, so we figured, what the heck?” Fjellman said, adding, “Famous last words, maybe.”
They opened a joint checking account and each of them deposits an equal amount a month to cover their living expenses. They also use the Splitwise app to keep track of those expenses, including Chung’s ongoing repayment of the down payment. For a few years now, Chung, who gets health insurance through his job, has covered Fjellman as a domestic partner. They’ve been using Splitwise to keep track of that, too.
“We have been very open about our finances,” she said.
What would happen if one of them received a job offer elsewhere or wanted to move out for whatever reason? Fjellman said they would deal with the situation, noting that they could always rent out the condo to cover the monthly mortgage if the market wasn’t strong enough to sell.
“This is an investment for us,” she said. “We would work it out.”
Even now, it isn’t too late for Chung and Fjellman to put in writing what they want, said Laurie Murphy, a partner at Valensi Rose PLC in Los Angeles, who was speaking generally. She suggested that their agreement include, at the very least, what happens if one wants to sell and one doesn’t, what they’ll do if one loses a job and can’t contribute financially, what happens if they break up or decide to marry, and who will inherit the other’s interest if one of them dies.
“Bottom line: Owning property can be complicated, and in my opinion it is always best to have something in writing, especially if you are unmarried,” Murphy said. “When and if they go to document their ‘agreement,’ it will of course force them to confront some uncomfortable issues ― similar to those confronted by couples who document pre- and post-nuptial agreements.”
‘I couldn’t have asked for a more perfect arrangement.’
Elizabeth Lees and Mel Schwimmer were both married to other people when they met at an Alzheimer’s support group for patients and their caregivers.
“The four of us would go to dinner sometimes,” said Lees. “But then our spouses worsened and had to be moved to a facility, and Mel and I were left.”
A relationship blossomed. “We got on together really, really well,” she said.
Three years ago, they decided to move in together. They sold their respective houses and paid cash for a 1,900-square-foot condo in Marina del Ray, California. In Lees’ case, the sale of her house also provided the money to pay for her husband’s care.
Both Lees and Schwimmer have adult children and they went into their condo co-ownership with a “what’s mine is mine and what’s yours is yours” attitude. They continue to keep their finances separate. They have one joint checking account from which all household expenses, including property taxes and the homeowners association bills, are covered. They pay their own way on vacations, buy their own cars and their own insurance, and are not responsible for each other’s medical bills.
Lees and Schwimmer went to a lawyer to help them set up their ownership terms and were transparent with their children to avoid potential conflict down the road. They own the condo 50-50 in a life estate, which means that when one of them dies, the other can live in the condo until that person dies or moves. When they are both gone from the condo, the ownership reverts to their respective trusts. At that point, their heirs can sell it.
Although both their spouses have died, Lees said they have no plans to marry each other. “It just would be too complicated. I couldn’t have asked for a more perfect arrangement,” she said.
Purchases made by later-in-life unwed couples can present especially complicated issues, said Murphy, who advised Lees and Schwimmer. Their financial affairs may differ significantly. “One will have more money than the other,” the lawyer said. Plus, there can be adult children, minor children, grandchildren and sometimes elderly parents to be considered.
“But any time two unmarried people of any age want to buy property together, it’s imperative that they plan for an infinite number of what-ifs,” Murphy said. Without a legal document, there are no rights or rules to protect them if they split, she said.
Just get it in writing.
Whether or not you’re investing in property together, there are “such things as cohabitation agreements, which set forth the who-gets-what in a breakup, much like a prenup,” Murphy said.
Otherwise known as “no-nups,” these written contracts are designed to ensure that the assets a person brings into a relationship remain under that person’s control if the relationship ends. They can also address what happens to property acquired during the period of unwedded bliss.
Finally, don’t count on the idea of common-law marriage to sort things out for you. There is a mistaken belief that people who live together for seven years are automatically married somehow. Only 15 states and the District of Columbia recognize common-law marriage by statute, and even those states offer little uniformity in how real property is divisible. On top of that, there’s this big problem: You may have a common-law marriage, but there is no such thing as a common-law divorce.
Murphy’s advice for those buying a house is simple: Get married or get a legal agreement.