Home Ownership Structure for Unmarried Couple

August 23, 2022 6:27 AM

If my partner and I want to buy a house but one person is contributing significantly more to the down payment, can that person's greater investment be protected in some way in the event of I guess a relationship dissolution, or at least future home sale? US based.

I guess I don't know how a deed can be structured-- if we both want to be on the deed, can one partner have a home sale repay their down payment before the remaining equity is split? Is this a contract we can add to the deed or a separate contract we can enter into?
How can we make joint home ownership work when one person is bringing a larger upfront investment, but both partners will contribute equally to the mortgage payments and house maintenance?

posted by cristalina to Law & Government (14 answers total)

My friend and I did this when we bought a property together. We met with a lawyer who helped iron out most of the details you express concern about, and came up with a contract that worked for both of us. That included me lending the friend a big chunk of the down payment, to be repaid at a very low interest rate. At the time, we had about a 3x income disparity and an even bigger savings disparity. We even adjusted the percentage ownership with the county to reflect actual ownership, but I honestly don’t think that was necessary.

For another property, we just came up with our own contract together that set a market value that acknowledges my existing equity in it, then splits equity beyond that chunk. Who knows if they would hold up in court but it made sense to us.
posted by MonsieurBon at 6:48 AM on August 23, 2022 [1 favorite]

Most arrangements that you might want to make like this can be done by contract, and that contract can be drawn up by a lawyer admitted in your jurisdiction.

There are probably at least 3 different relationships that you'll want to think about:

1. Who the state considers to be the owner. (This is the deed.) The state mostly doesn't care how multiple owners want to split things up between themselves. They just want to know who's responsible for paying the taxes, and who should get sued if somebody hurts themselves on the property.

2. You and your partner. This is the main contract you'd be hiring a lawyer to draft.

3. You, your partner, and any lender you're using. This is the mortgage. The lender also doesn't care how you and your partner are splitting things up, as long as they can pursue either or both of you for the full balance of the loan. You are unlikely to get a vanilla lender to do anything special for you, or to agree (e.g.) that one of the borrowers is only responsible for X% of the loan.
posted by spacewrench at 7:01 AM on August 23, 2022 [7 favorites]

This can be done easily with a contract. It would be best to have a lawyer draw up the contract, so you have a good enforceable agreement if something goes wrong down the line. It will cost some money to have a contract drawn up, but it will be a small percentage of the amount at risk if things go wrong.
posted by Mid at 7:05 AM on August 23, 2022

When I wanted to do something similar, we encountered a problem in that I wasn't able to explain how we wanted the equity to be split in a way that the contract drafter understood. After 3 attempts I gave up. We subsequently married so the point is effectively moot in our jurisdiction. But think carefully if you're trying to do something mathematically complicated. You need a split that seems fair to both parties and can be written down effectively.
posted by plonkee at 7:45 AM on August 23, 2022

The contract between the two of you should include what happens in a variety of scenarios: What if the majority owner wants to sell at some point and the minority owner does not? What if one of you wants to exit ownership of the house or the relationship? Does one person have to buy out the other? Using what metric? Must the house be sold and any gains split proportionately? What pros and cons are there to being on the deed (especially for the owner with the smaller ownership stake)? If the smaller stake owner wants to build equity over time, is there a mechanism for that (sweat equity, rent, etc.)? How will you apportion exposure to any shared elements like insurance, lawsuits, etc. for the party on/off the deed? A decent real estate contract lawyer will likely prompt you about these scenarios.
posted by cocoagirl at 8:09 AM on August 23, 2022 [2 favorites]

I did this with my ex and we did end up separating and are now selling the house. We had a lawyer friend help us write a “contract” initially. This was separate from the mortgage bank process, and as far as the bank was concerned, we owned it equally. I think ultimately you need to keep track of the numbers yourselves and have a mutual agreement (and trust) amongst the two of you of what happens in the case of a dissolution. My ex kept very good track of the numbers, and I am very grateful for that and also that we have maintained civility and fairness throughout the dissolution.
posted by monologish at 8:14 AM on August 23, 2022 [2 favorites]

If you form an LLC to buy the house, you can make allocations and equity decisions within the LLC agreement.
posted by JohnnyGunn at 8:31 AM on August 23, 2022 [4 favorites]

I recommend consulting with an attorney who is familiar with marriage laws in your jurisdiction. If you and your partner are married, or if you are in a relationship that can be construed as a marriage, it is possible that spousal protections could override a contract.
posted by Winnie the Proust at 9:31 AM on August 23, 2022 [3 favorites]

If you need some terms to google for research, look into "joint tenancy" vs. "tenants in common" as two basic ways that a deed can be constructed, in the US at least. Details will vary per jurisdiction and per state. You'll need a real estate attorney anyway to represent you at the closing, so it can't hurt to find one local to you right now to consult on this.

I suspect that getting a mortgage through an LLC for a primary residence will be more complicated than one or both of you getting the mortgage individually. But again, you'll need a mortgage broker (or bank) eventually anyway as part of this process, so it can't hurt to find one and ask them.
posted by hovey at 10:46 AM on August 23, 2022 [1 favorite]

This is likely very state dependent.

For example, where I'm located, in British Columbia, a couple cohabiting together for 2 years will be subject to the same family law rights on dissolution of that relationship as married people, and so their jointly owned property would be treated much differently than friends who co-own property. In most other places, this is not the case at all.

The law about co-ownership of property also varies a lot. Where I am located, the law reform people have described it as archaic and it causes lots of problems unexpectedly.

In any case, what is absolutely certain is that you require a written agreement drafted by a competent lawyer with experience in the area, following a careful consideration of whether this makes sense to do in all of your circumstances. A lawyer would probably also require one of you to get independent legal advice on the agreement, as they can only represent one of you.

I understand that the answer "only a lawyer can say for sure" is a frustrating one, but this really is one of those cases where internet advice is very likely to lead you astray. This co-ownership of property issue is the number one time on MetaFilter that I tell people to be careful and get a lawyer.
posted by lookoutbelow at 12:08 PM on August 23, 2022 [1 favorite]

Say Erin puts $100k into the down payment and Arty puts in zero. You would write a contract saying that when the house is sold or the couple parts ways, Arty has to pay Erin $50k (Arty’s half of the down payment, plus interest if you want), before Arty gets their cut.
posted by nouvelle-personne at 12:46 PM on August 23, 2022

Talk to a lawyer, and I think creating a Trust to own the house might be the correct place to start.
posted by WizKid at 12:47 PM on August 23, 2022

The various structures suggested above, in addition to being complicated, costly, and potentially financially disadvantageous (impact on interest and property tax deductions), are likely to still be very messy if the relationship ends.

Particularly if one person's contribution is substantially larger than the other's, that person should probably just buy it in their name and the other contribute solely to maintenance/utilities and some small additional payment based partly on their means, and not have them helping to pay down the mortgage (which is ostensibly building home equity for the person with ownership). It might be challenging to fairly allocate the financial responsibility, but not nearly so much as apportioning ownership or creating some structure.

Not financial/legal advice.
posted by redondo77 at 1:16 PM on August 23, 2022 [1 favorite]

We went through this when we bought our current house. My (now) wife put up a lot more equity than I did to buy the house and we set it up as 'tenancy in common' where she owns 70% and I own 30%. How that gets treated if the two parties separate will vary by country/state etc (and our getting married since buying the house likely changes that), but we figured it's a clear indicator of how much each party put in and a strong argument as to how any proceeds should be split should things get ugly. A contract between the two of you as to how proceeds are to be split would help and you probably don't need a lawyer to do that, but it can't hurt. If things get ugly, they'll get ugly and a contract won't make them much better. You can't live your life based on a view that things will fall apart all the time.

Creating a trust or company to own the property will likely impact on borrowing - it may be treated as an 'investment property' by lenders and attract higher interest among other things such as possible tax implications.
posted by dg at 1:22 PM on August 23, 2022