Wednesday, February 16, 2011

When Unmarried Couples Buy A Home Together

Today, more than ever before, unmarried couples are deciding to purchase homes together. Presently, more than eight percent of all owner-occupied homes in the U.S. are owned by unmarried couples. Although there are many reasons why purchasing a home with a non-spouse is a good idea, the parties should realize that almost half of such cohabitation's break up within five years and plan accordingly.

When unmarried co-owners decide to go their separate ways, serious differences and problems usually arise just as they do when married co-owners split up. Unfortunately for unmarried co-owners, however, they do not have the benefit of either the protections provided for married couples by State laws nor do they have an established body of case law to rely upon as married couples do.

Consequently, when unmarried couples purchase homes – or any other real estate – together, it is important for them to have a written agreement that spells out their respective rights and responsibilities concerning the property, not only while they live there together, but also if and when a time comes when they decide that living together is not working out the way that they had hoped it would.

A properly written Homesharing Agreement would deal with at least the following issues:

1. Acquisition

A. Earnest Money Deposit and Downpayment. Who pays how much?

B. Closing Costs. Who pays how much?

C. Liability. Who signs the purchase money Note for the loan?

D. Title. Who gets what percentage of ownership? Does the title pass to the survivor if one of them dies?

2. Ongoing Payments

A. Mortgage. Who pays how much? Rent?

B. Real estate taxes. Who pays how much?

C. Insurance. Who pays how much for hazard and liability insurance? Other Insurance? Who and what is covered by the policies?

D. UOA/HOA/POA fees (if applicable). Who pays how much?

E. Utilities. Who pays how much?

F. Maintenance, Repairs, Replacements. Who pays how much for each type of expense? Who decides what is needed and when?

G. Improvements. Who pays how much? Who decides what is to be improved and when?

H. Other Expenses. Who pays how much for any other expenses?

3. Occupancy. Who is entitled to occupy what portions of the property? May a party lease their space to someone else?

4. Personal Property. Who owns what personal property acquired prior to homesharing? Who owns what personal property acquired during homesharing?

5. Sale or Transfer of Interest. Under what circumstances will a party be allowed to sell or transfer their interest in the property; or compel the sale or refinance of the entire property? Put/call options? Who is entitled to stay? Who must go?

6. Management/Control. What degree of agreement (unilateral? unanimous? majority?) is necessary between/among the parties before a decision can be made that materially affects the condition, use and/or enjoyment of the property?

7. Default. What happens if one party cannot pay their share of any required payments?

8. Distribution of Proceeds upon Sale. What is the priority of distribution of funds upon sale? Who takes how much of the loss if the property cannot be sold for the price that was paid for it?

9. No partnership. The Agreement should state that it does not create a partnership for any purpose, including federal income tax purposes.

10. Termination of Agreement. Under what circumstances, if any, can a party terminate the Agreement?

Properly planning, in advance, for these types of contingencies can spare both parties a great deal of acrimony and emotional distress, not to mention thousands of dollars of expense, if and when they decide to go their separate ways.