Q: I’ve read your column weekly for years now. You have occasionally talked about steps that an unmarried couple should take before they purchase a home together. My boyfriend and I are now in escrow on our first home. I’ve tried to talk him into seeing an attorney but he says it would be a waste of time and money. Would you tell us what we should do and why we should do it?
A: There is a gaping hole in the law when it comes to unmarried couples buying homes together.
When a married couple purchases a home with community property money, and pays the mortgage, taxes and repairs from community property money, the law dictates how the property is divided up or disposed of in case there’s a divorce.
But no matter how much you love each other, as far as the law is concerned you and your boyfriend are just real estate investors. When two or more investors purchase a property the law provides a way for the partners to dissolve their partnership and equitably get rid of the property. This is known as a partition action.
Currently, the law looks at a couple who breaks up the same way as it looks at two investors. Partition actions are treated as a business event, very cold and unemotional. It is also assumed that both the parties have a working arrangement for continuing to pay the mortgage, etc. even as the property is being partitioned. In other words, the law assumes the parties have money.
In the real world, when a couple owns a house together and breaks up it is usually as emotionally, and financially, traumatic as a divorce. But the divorce laws don’t apply. Often, one party has paid more than the other for mortgage, taxes and repairs but the other paid more for food, utilities, gas, whatever.
Since the income of an unmarried couple is not community property the law doesn’t care who bought the food, it will only care how much money each individual put towards the house itself.
For a couple who have lived as if they were married, but without actually tying the proverbial knot, this can be really unfair. Additionally, when a couple breaks up, one person often moves out leaving the other to pay the mortgage and taxes. Mortgage companies don’t take one-half payments so even if the party pays their one-half, if the other person refuses to make their payment the house can go into foreclosure before the court can do anything about it.
This could result in a foreclosure on both person’s credit history and even a money judgment against each. Additionally, and equity that was in the property may be lost.
To prevent this problem the couple should see an attorney about drafting an agreement between them regarding their respective ownership interests and what is to be done with the property should their relationship end. Common terms would include an agreement as to the percentage of ownership, usually 50/50 although this could be different if one person has a much higher income. The couple would want to determine how the property is disposed of if the relationship ends.
For example, the agreement could call for an appraisal upon demand of either party. If the now ex-couple can determine who is to buy who out, the property will be listed and sold under a prearranged price structure.
If one person put more money into the down payment and closing costs, that can be laid out in the agreement so they can recoup their initial investment. Additionally, the agreement can dictate that each party will be presumed to have contributed one half, or any other percentage, to the purchase and maintenance of the property, regardless of who actually writes the check. This makes dividing the final proceeds from the sale a lot easier and more equitable.
The only problem with these agreements is that couples in love are hesitant to contemplate breaking up. Just like in prenuptial agreements, no one wants to allow for the possibility of a breakup. Maybe it’s a karma thing?
But it’s just plain crazy to pay hundreds of thousands of dollars for a house when, if the relationship ends, your financial life could be ruined for many years to come.
Tim Jones is a real estate attorney in Fairfield. If you have any real estate questions you would like to have answered in this column you can contact him at SolanoScene@TJones-Law.com.