Homebuying for Unmarried Couples
Senior Mortgage Banker
Email: [email protected]
If you and your partner are wavering on tying the knot, you may want to think twice before purchasing property together.
Believe it or not, financially speaking, it’s more difficult to break up a co-ownership on a house than it is to get a divorce. So while you may think that making the choice to get married is your biggest decision, it’s not.
With that being said, it’s still not uncommon for unmarried couples to purchase a home together. If you do plan on purchasing a home with a partner, it’s imperative that you plan ahead, and file the legal paperwork, so that you are protected if the relationship fails.
Marriage is not just a symbol of love between two people; it’s a legal contract that grants you and your spouse rights. When you are not legally married however, you have to go about obtaining these rights on your own time. When you are preparing your written property agreement you should consider the following questions:
How will the shares of the house be divided?
In some cases, one partner will initially invest more money into the home than the other. If the other partner does not promise to contribute an equal amount (or close to) over time, then the partner who puts more money down should own a greater percentage of the home.
How will we divide our assets if we break up?
No one wants to assume their relationship will end, but the fact of the matter is that many relationships do. When you’re preparing to purchase a home with your partner, it’s safe to take into account a worst-case scenario. Come to an agreement right away, while you’re both happy and excited about starting your new life together. If you don’t resolve this issue early on, then the next chance you’ll have to deal with it is during or after a potential breakup.
What will happen to our house if we break up?
Perhaps one of you would choose to remain in the house. This is fine, but you should determine (preferably beforehand) what assets or compensation the other partner would receive. Maybe neither of you will want to stay in the house. In this case, living arrangements should be made for both of you, so that you’ll know that you have a place to stay while you are in the process of selling the house. The most difficult scenario to work through is if both partners want to stay in the house, and each wants the other to leave. Considering that both names would most likely be on the title of the home, there is no way that one partner could legally force the other to leave. It’s highly recommended that you plan ahead for this specific scenario.
Completing the Paperwork
As an unmarried couple, you both need to be concerned with a few things. When you’re applying for a mortgage, the bank or lender will require a credit rating from each of you. One score could be great, but lenders always take the worst of the two scores. If the other is too low, then it’s likely that you won’t get the loan.
You also need to be aware of your state and local laws. Although they are rarely enforced, some states and towns actually have laws prohibiting unmarried couples from buying property together. Realtors tend to be more concerned with making the sale than abiding by these laws, so always double check.
Consider these two primary options when you are determining the future of your home and assets:
Joint Tenancy with Rights of Survivorship
While legally married couples are automatically granted JTWROS, unmarried couples must file for this status. JTWROS is a type of account that allows for the home and assets to pass immediately to the surviving partner after the other dies. The surviving partner will also be able to avoid inheritance taxes, because the house doesn’t go through the estate.
The only catch with JTWROS is that neither partner can sell his or her share of the house, or leave their share to anyone else in the instance that he or she dies.
Tenants in Common
This option allows for there to be multiple owners of the home, and for each of these owners to possess unequal shares, if appropriate. With tenants in common, it is possible for any one of the owners to sell their share of the home at any time. However, each owner should have an up-to-date will, if they choose this type of ownership.
What to Avoid
If you don’t file the appropriate paperwork and written agreements before you move into your home, then you could find yourself in trouble down the road. In addition, you need to remain current with your paperwork, especially if the relationship ends. Here are some potential, negative outcomes that can come as a result of a lack of preparation and attentiveness:
- If you originally filed for JTWROS, but something went wrong with the relationship, you had better alter your agreement. If not, your partner, or soon to be ex, would still be entitled to the house and potentially your assets if you were to die. Whether or not you meant to leave your assets to your family or friends wouldn’t matter. On paper, you had left it all to your partner.
- If you did not file for JTWROS, and one partner dies, the family of the deceased may try to sell the house. Depending on the relationship between the family and the survivor, it might not matter that the survivor wants to stay in the house. If the deceased had left his or her assets to the family in the will, then legally, there wouldn’t be much that the survivor could do to preserve the deceased’s share of the home.
- In the event that one partner dies, there is a chance that the survivor could run into some income tax issues if he or she can’t prove how much was individually invested into the home. This would only be an issue if the paperwork wasn’t in order.
- If you and your partner do not come to an agreement (and get it in writing), and break up, the legal disputes over the house could take a very long time to resolve. It would also cost both of you a ton of money in legal fees.
If you and your partner decide that you want to get married a few years after purchasing the house, then you will want to adjust the title on the house accordingly. It may seem like a minor change, but by declaring you and your partner as husband and wife, the creditors cannot single out one of you for bad credit. If they were able to do this, then they could add extra interest onto that partner’s share of the home.
There are definitely disadvantages to purchasing a home as an unmarried couple, but making the choice to get married is no small decision. It all depends on who you are, and where you are in your life. If you believe that living together before getting married will strengthen your relationship, then perhaps moving in with your partner is the thing to do. Just remember, the legal issues following a breakup will be resolved differently if you aren’t married.
An important note: The information in this guide is NOT legal advice and therefore should not be relied upon when making any home buying decisions. Readers should consult with their own attorneys for legal advice specific to their situation.