Real estate can drive relationships, for better or for worse, especially in New York, with its high cost of living and even higher cost of real estate. An annual survey released by the National Association of Realtors showed that 65 percent of homes purchased in 2014 were bought by married couples, 16 percent by single women, 9 percent by single men, and 8 percent by unmarried couples. These numbers have remained relatively unchanged over the years with the exception of a slight increase of unmarried couples purchasing a home. When it comes to property ownership, the rights of married couples are clearly defined. For couples deciding whether or not to buy before they decide whether or not to tie the knot, home ownership presents certain unique issues.
Planning for the “What ifs” – Co-Ownership Agreements
A co-ownership agreement can address issues regarding each party’s obligations not only during the relationship, but in also in the event that the relationship doesn’t last. The agreement will dictate some of the specifics that could become misconstrued later. Below is a non-exhaustive list of issues to discuss and address. It may seem unromantic to discuss these issues when you are buying a home together but it’s always wise to prepare for some of those “what ifs.” Answers to these questions, included in a written co-ownership agreement, will clarify rights and obligations now and reduce or even avoid conflict down the road.
- How will expenses be allocated? Consider all of your expenses – the cost of buying the home (down payment and closing costs), owning the home (mortgage payments, property taxes, insurance, utilities and minor repairs), and maintaining the home (major repairs and enhancements). For each of these cost categories, allocate decision-making and payment responsibility, and determine how these contributions will affect the distribution of the proceeds when the house is sold.
- If we break up how will the property be divided? Since it is unlikely you will want to continue co-ownership following separation, either partner should be permitted to force a buyout or sale. Parties should discuss whether or not one party will have the “right of first refusal” to buy out the other in the event of a separation and how the value of the house will be determined in such an event. If there’s a possibility that joint ownership will continue, an agreement should describe each partner’s rights and responsibilities following separation.
- How will the proceeds from the sale of the house be distributed? Clearly allocate each partner’s rights to sale proceeds even if the property is separately held.
What happens if one of us passes away? Disputes with a deceased partner’s heirs are common, so clarify postmortem intentions even when property is separately held. If either partner might own jointly with the other’s heirs, allocate rights and duties between the surviving partner and the heirs, and provide for a forced buyout or sale.
- Who will live in the house if we separate? Decide who will occupy any shared dwelling following separation.
- How should we take title? Under New York State law, unless the deed specifically states otherwise, a husband and wife are considered “tenants by the entirety” when they buy property. That ensures, among other things, that the property will automatically transfer to the surviving spouse if one person dies. Unmarried couples cannot hold title as “tenants by the entirety” but can instead hold title in the name of only one party or as joint tenants, or as tenants in common. The decision on how to take title will effect certain terms of your co-ownership agreement, most notably, what happens when one owner dies.
Individual Ownership. The home being owned by just one individual is the most dangerous, particularly for the non-owning partner. Although there may be joint interests in the property, there is only one person who is recognized as the legal owner. That means that person could sell the property without the consent of the other and take all the profit. They can also reap all the tax benefits. Furthermore, if the owner passes away without a will directing otherwise, ownership of the property would pass to the next of kin rather than the owner’s partner.
Joint Tenants. Couples that own as joint tenants have a “right of survivorship”, meaning that if one owner dies, the other automatically becomes owner of the deceased owner’s share. The passage of the deceased owner’s interest to the other owner does not require a will or other estate planning document, and does not involve a probate court proceeding. For this reason, holding title as joint tenants provides the least expensive, fastest, and most definitive manner of passing property between co-owners upon death. But joint tenants must hold property in equal shares which means that if the couple wants an unequal allocation of rights or responsibilities either during their relationship, after a breakup, or both, they will need a co-ownership agreement.
Tenants In Common. A “tenancy in common” is the most popular form of ownership and the default form of ownership if the parties do not specifically indicate otherwise on the deed. Each individual can own different and unequal percentages of the property. There is no right of survivorship, so if one were to pass away, that individual’s share would be given to whomever is designated in their will OR by default their heirs according to state law. That can get a little messy without a life estate provision in the deed. When a tenant in common owner dies, with or without a will, his or her interest must go through a probate court procedure which always involves some delay and cost, and can provide an opportunity for relatives to contest a will or argue about succession.
There is no one way to prepare for all of life’s unknowns, but a well thought out agreement between unmarried parties purchasing property together can reduce uncertainty and as well as expenses by clarifying the intent of the parties.