Owning a House with Your Partner – What Could Go Wrong?

A few weeks ago, there was some news about two celebrities who are in a relationship but not married, buying a house together. On its face, there is nothing interesting about this. The two celebrities are a known couple, so buying the house together was not the public announcement of their relationship. But owning something, like real estate, as a married couple is different from owning the asset as an unmarried couple.

Using a fictional unmarried couple, Richard and Elizabeth, here are some of the issues with owning a house with your partner we have seen, relevant to celebrities and non-celebrities alike.

1. Understanding the actual ownership portions

If a deed shows ownership of real estate as “Richard Jones and Elizabeth Smith,” and Richard and Elizabeth are not married to each other, the property will be assumed to be owned 50% by Richard and 50% by Elizabeth. This type of ownership is considered to be “Tenants in Common.” This is just two or more people owning real property together. Nothing special. And when the property is later sold, that is how the sale proceeds will be divided equally among the owners.

But is that really what was intended? If Elizabeth paid 60% of the down payment and Richard paid 40%, should the ownership be 60% for Elizabeth and 40% for Richard? And what if there is a mortgage, and one pays more on it over time than the other? Or one pays more of other ownership expenses – property taxes, insurance, repairs, and improvements? Absent some agreement by the couple, none of these extra expenses come into consideration when the future sale proceeds are divided. At the time of sale, the closing group will issue the proceeds checks based on how the deed shows the ownership.

2. What if the couple breaks up?

When a married couple “breaks up,” that is a divorce, and there are specific laws on how the couple’s property is divided between them. But those laws do not readily apply to non-married property owners. In recent situations, the division of the property for a non-married couple is viewed as being similar to two business partners shutting down their business and dividing the business assets.

3. What if one of the couple dies?

A surviving spouse has specific rights to the deceased spouse’s assets. If real property is purchased by a married couple, the type of ownership title is considered to be “Tenants by the Entireties.” This is sometimes referred to as “TBE.” A part of a married couple’s ownership of real property as TBE is a “right of survivorship” – when the first one dies, the survivor automatically owns 100% of the property. The deceased spouse’s Last Will and Testament (LWT) has no power to transfer his/her 50% ownership away from the surviving spouse. The right of survivorship beats whatever the Last Will and Testament directs.

But with an unmarried couple owning property as Tenants in Common, there is no right of survivorship between them. At the first death, the decedent’s LWT directs who receives his/her portion. Unless the survivor is specifically a beneficiary of the LWT, he/she may not receive the deceased’s portion of the house. It may pass to family members. And if the deceased does not have a LWT, state laws for “intestate succession” direct who inherits. Intestate succession only includes family members. A non-married co-owner of real property is not considered a family member for inheritance.

How to Prevent These Problems

There are some ways for unmarried couples who own property together to prevent some of these problems.

  • 1. If, at the purchase, the couple knows that the ownership is to be something different than 50%-50%, make sure the deed properly reflects the intended ownership portions between them.
  • 2. Make sure each has an updated LWT that includes the co-owner as a beneficiary, preferably specifically with one giving the other ownership of the property.
  • 3. Instead of using a LWT, the couple should consider creating a trust to hold the real property. The trust can be designed to address all of the issues listed above, both during their lifetimes and in the case of death.

Contact MHPS to Start Planning for the Future

Planning for the future is difficult for anyone. But if you aren’t married to your partner, you’ll have some extra considerations to make during this period. You want to ensure that everything is passed to the correct person. You can’t guarantee that unless you have the proper plans in place. The estate planning attorneys at MHPS can help you create estate plans that provide for your partner.

If you haven’t started planning your estate yet or have questions about your estate plans, contact MHPS today for help.

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