Owning a Home with an Unmarried Partner
Joint ownership of property by unrelated individuals is becoming more common today, but unmarried people who pool resources to buy a home face some daunting challenges. Chief among these is what to do with a house if a partnership breaks up. Equally problematic is how to deal with a partner's death and the subsequent transfer of property rights.

In addition, a host of other situations can prove troublesome. These might include one partner's potential liability for the other's debts, the difficulty of removing a former partner's name from a deed and mortgage," and the costly tax problems that can arise because of differences in the way the laws deal with married and unmarried couples.

Most legal advisors recommend that unmarried homeowners protect themselves by securing a number of documents, including a will and a written agreement. It's also essential for tax and estate-planning purposes that they choose the right kind of deed. This formal agreement to purchase a property is particularly important because it spells out the manner in which title should be held - a matter of significant consequence if the house is sold or one party moves out or dies.

Splitting Up the Household

When unmarried individuals own a home together and then break up, dividing the assets can be a complicated and costly affair.

When married couples get divorced, the courts generally distribute their assets - usually by splitting them in half. But since unmarried partners can't use a divorce procedure to decide who gets what, they must rely on a generic civil lawsuit called a "suit in lieu of partition" to allocate the property.

With such litigation, both partners may have to prove their respective contributions to the joint property over the years. If the mortgage payments were made out of a joint account, partners may even have to prove how much each contributed to the account.

Inheriting the Home

Another issue that can prove troublesome is determining what to do with the property if one partner dies. The estate-planning and tax implications of this usually depend on the kind of deed the owners have obtained.

If nothing to the contrary is stated on the deed, the property is most likely owned as "tenants in common." With this kind of deed, multiple partners can each own a different percentage of the property and have an equivalent responsibility for expenses related to it - taxes, repairs, mortgage and so forth.

If one partner dies, his or her share will go to the deceased's heirs or relatives, according to the terms of the will. The share will be subject to '!" inheritance taxes when the will is probated, and to income taxes if the property is ever sold. Although this can be beneficial for estate-planning purposes, it can also result in a partner owning a home with one or more strangers.

If the property is owned as tenants in common, the partners should craft wills stating how they want their property to be dispersed if they die. However, a will alone may not protect unmarried homeowners.

The partners' wills should be supplemented by a written agreement spelling out other contingencies. For example, the surviving partner might be granted a "right of first refusal" to buyout the deceased partner's share from the estate. The agreement should also specify the percentage of interest each partner has in the home, how the assets will be divided if the partnership breaks up, and what to do if one party can no longer contribute to the mortgage or other expenses related to the property.

Another option is to draft a deed stating that the property is owned as "joint tenants." Under this form of ownership, each partner owns the whole property and has an "automatic right of survivorship," meaning that if one partner dies, the deceased's share automatically goes to the surviving partner -' and is usually not subject to estate taxes. Partners should be aware that if they opt to own as joint tenants, their surviving family members will never have any claim to their property, since it will never become part of their estate.

Legal Advice Is Key

Because of the often thorny tax and estate-planning issues that can arise if one partner dies, unmarried homeowners should consult a lawyer and/or tax expert before buying a house together. Ideally, they should retain separate counsel, to ensure that the terms of the deed and any other written agreements are negotiated fairly and equitably.

A knowledgeable lawyer will be helpful, for example, if one partner is interested in buying out the other. This is a risky move for both individuals because signing away ownership rights doesn't necessarily relieve a partner of obligations for the property. The partner who is buying may also find himself liable, because many mortgages specify that if a bank learns of an unauthorized sale or transfer it can demand "immediate full payment of the mortgage!"

Unmarried homeowners may also find themselves in a situation where one partner wants to sell his or her share of the house and the other disagrees. In such instances, a suit in lieu of partition may have to be filed in court. The judge will generally order the sale, and the partners will receive their share of the proceeds.

In general, unmarried homeowners should remember that all parties to a mortgage are personally liable for the debts incurred by anyone of the partners. Thus, if one partner decides to walk away from the partnership, the others can be stuck with all remaining mortgage payments.

These legal issues may seem unduly negative and cold-hearted, but dealing with them before buying is the best insurance for all partners planning to purchase property together. Once they're taken care of, the owners can relax and enjoy their new home - without worrying that the roof will fall in on their dream.

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