This article was written by associate attorney Laura MacMillan and edited by Jill E. Brittle.
Today, especially in the Portland area, the housing market is tough. Often times, sharing the rent with your partner is the only way to make ends meet with prices skyrocketing. Many couples are noticing that rent is now getting so high that a monthly mortgage payment would actually be cheaper, and they would prefer to build equity in the property instead of just losing that monthly payment to the landlord. However, these practical financial realities do not always line up with where a couple is when it comes to their position on marriage. Marriage may not be a commitment that a couple is willing or ready to make, but those same couples do not want their bank accounts to take a hit because of that very personal decision. If you find yourself in this boat, it’s important to carefully consider the consequences that may come along with taking out a mortgage and purchasing a piece of real estate with someone you are not legally connected to.
Breaking up is no longer simply moving out
When you own real estate with someone, you are both creating equity in one asset together. This can be a smart financial choice, until you and your partner decide to part ways. If you are renting, you can wait out the rest of your lease and move out with no further consequences. If you own the house together, the process is much more complicated. Selling, refinancing, and/or trying to get the money out that you put in can be a grueling and potentially disappointing process.
“When you own real estate with someone, you are both creating equity in one asset together.”
The divorce laws in place to protect individuals’ interest in large assets are not necessarily effective
There is a whole world of divorce law in place to guide and protect married parties who are going through the process of dividing their assets. The court will try to keep the distribution of assets and debts equitable, recognizing that both parties have a marital interest in the home. When the parties are not married, the court has much less guidance and will not necessarily take both parties’ interests into account evenly. With little case law to lean on, it becomes a much larger risk whether you will get the money out that you put toward the home mortgage or improvements. Courts have had a lot of practice interpreting the laws surrounding divorce, resulting in overall fairer outcomes. This is not necessarily the case for unmarried partners.
Even if you put only one person’s name on the title of the home, that person may not receive all of the equity in the home
Many people presume that putting only one person’s name on the title will ensure that person accrues the entirety of the home’s equity. However, if the other partner has participated in paying the mortgage, or the money from a joint bank account has gone towards building that home equity, whose name is on the title may or may not make a difference to who is entitled to the equity when breaking up. Again, with little case law as guidance, it’s a large risk to assume that a judge will side with you just because you put your name on something.
Unless you create a will, the house will not automatically transfer to the other person upon someone’s death
A home is a large asset, and it’s important to understand who will get that asset in the unfortunate event of someone’s death. If the owners of the house are married, then the surviving spouse will get the home, even if the deceased did not have a will. However, if the couple is not married and has not written each other into their respective wills, the house will not necessarily go to the surviving partner, creating a probate nightmare and potential litigation.
So what are my solutions?
- Get married: As soon as you get married, a much more established legal world is available for your protection and guidance in the event of a divorce or death.
- Have an attorney draft a contract regarding the home: The biggest problem unmarried parties run into when things “go bad” after purchasing a house together is determining the interests of each party. With a little work on the front end to to contractually establish how values and interest will accrue (or how loss of value will be handled), everybody will know the terms should the parties part ways.
- Have one person pay for everything and establish a system of monthly rent payments: If you want to remain unmarried and keep it clear that only one person owns the home, it is possible to set up a renter/landlord contractual relationship between the partners. As unromantic as this sounds, it enables one partner to establish the house as a separate asset, while allowing the other partner to contribute financially. In the even of a breakup, the “landlord partner” will walk away with the house and its accrued equity, and the “renter partner” will walk away with nothing.
- Write each other into your wills: Writing a will is something we often let slip through the cracks, so establishing one is a prudent thing to do anyway, especially if you have significant assets. Particularly if you and your partner intend to remain unmarried, make sure each partner includes the other as the beneficiary of the home–and any other assets–in the event of one of your deaths.
The decision to get married or buy a house is life altering. Neither one of these should be taken lightly or without careful consideration. Ultimately, it’s important to remember the potential ramifications of entering legal contracts, especially if you are not used to thinking in these kind of terms. But protecting yourself up front from unknown legal consequence will potentially save you time, money, and stress in the future.
If you have any questions regarding the purchase of a home with your partner, please reach out to the attorneys at Jill Brittle Family Law Group and we would be happy to meet with you.