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
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
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
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
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.