Purchasing a home with a partner outside of marriage may seem like the ultimate demonstration of your commitment, but there are legal and financial risks that make it a decision to carefully consider.
Adding a partner’s name to the house’s title without being married – and without a proper contract in place – may introduce risks that cause both parties significant time, money and additional heartache in the future.
Let’s explore some of the potential complications that may arise when an unmarried couple decides to purchase a house together, and some options available to safeguard your investment.
Co-ownership Considerations
When a couple is married, the parties can take advantage of the community property rule as it relates to property they acquire during their marriage. However, unmarried couples face a far murkier situation if the relationship ends. For example, under Idaho law, if two or more people are listed on the title to property and that title is silent as to the amount of each person’s interest, there is a presumption that they have equal shares, or 50/50 ownership.
And while a party can challenge this presumption in court by bringing in evidence that the parties intended unequal shares, the challenging party might find it difficult to find admissible evidence to make their case, leading to potential disputes over ownership and equity.
The question also arises as to whether you want to co-own property with a former romantic partner. In many situations, individuals want a clean break and to go their separate ways. Decisions swirl around whether the property should be sold, who gets to keep it, who has to move out, and whether any money has to exchange hands.
If the parties can agree that the best path forward is to sell, they still need to agree to a sale price and who gets how much of the sale proceeds (at the very least!). If the parties can’t work it out, the stalemate requires legal intervention to resolve, which can be emotionally and financially draining for all parties involved.
Cost Considerations in Refinancing
Adding a partner’s name to a home’s title also has significant financial implications, particularly when it comes to refinancing the property. Should you wish to remove your partner’s name from the title or mortgage in the future, this typically requires refinancing the property into just one person’s name. Refinancing involves various costs, including application fees, appraisal fees, and closing costs, which can add up to thousands of dollars (and, potentially, an increase in the mortgage interest rate).
The process also hinges on an individual’s ability to qualify for a mortgage independently, which may not be feasible for everyone, especially if their financial circumstances have changed.
Plan for the Worst and Hope for the Best: Alternatives and Precautions
For couples who are considering purchasing a home together before marriage, there are safer alternatives to adding both names to the title.
One option is for one person to hold the title alone, with a legal agreement outlining both parties’ financial contributions and what would happen to the property if the relationship ends.
Another approach is to create a legal entity, such as an LLC, to hold the property and in which both individuals are members. Even with an entity option, careful drafting of an operating agreement is necessary to head off any issues in case of a breakup.
It’s crucial to understand the potential complications and explore safer alternatives that protect both parties’ interests well before the time when the strong emotions surrounding a break-up clouds communication and decision-making. Ultimately, if your fairytale has a happy ending, adding your spouse to the title of your property is much simpler than removing an ex-partner.