In recent years, buying a home with a partner has become quite common. As exciting as it may be, partners must understand the legal implications of dual ownership. Unless you know the ins and outs of buying property together, you may face unexpected problems if the relationship flounders and you go your separate ways.
It may not seem very romantic, but break-ups happen. So, you must agree upfront how the property will be distributed in the event of a split. Many people live to regret the fact that they failed to have the discussion before buying property, failing to draw up a contract at the time.
Take John, for example. He and his fiancé, Natasha, bought their first home together. He contributed 70% of the deposit and she just 30%. Despite having paid more, John never explicitly told Natasha that he would take over their Sydney apartment if they split.
When the couple finally broke up, they couldn’t agree on how to split the property and so neither moved out. Awkward! The property is currently worth less than when they bought it, making the decision to sell quite difficult. John is now trying to save to buy out Natasha’s portion.
Saving to buy a property
People’s attitudes to saving differ. Saving for the deposit together with your partner is a good starting point for buying property together. This will give you a good idea of your partner’s saving habits.
Once you have decided to buy together you must decide whether the loan will be in both your names or in the name of one or the other of you. This decision carries legal implications.
It is always a good idea to get the advice of a financial planner or lawyer before buying property, even more so when you buy together.
Ways in which you can own property together
Tenants in common and joint ownership
If you and your partner have chosen joint ownership you own the property equally and each of you is entitled to a 50% share. Tenants in common, on the other hand, split the percentage of ownership according to the amount paid.
In the case of death, if you own the property jointly, the surviving owner will own the property in its entirety.
Tenants in common is the vehicle used when the contributing partners pay different amounts and want this to be factored in on disposal of the property. This is also best when dealing with deceased estate planning because you can bequeath your portion in your will.
When you buy as tenants in common, you and your partner remain jointly responsible for loan repayments. This means that if one partner defaults on payment the other will have to make up the shortfall or face a poor credit rating.
There is another complication. When you buy property jointly, Family Law becomes an issue. It doesn’t matter how long you have lived together. Even if you have decided that you will divide the property 60/40 under the tenants in a common arrangement when you actually split Family Law will kick in. Family Law takes account of contributions to the home, shared assets and future needs and income.
The only way that you can avoid Family Law taking effect is to draw up a binding agreement. A Lawyer must write this and include the future split of assets. The contract must state who makes the mortgage repayments and how the property is split when you separate.
The contract may have a termination clause and can include timed changes like after one year X happens and after 10 Y.
What happens when the relationship ends?
There are a number of options that you may choose. They’re listed below:
- One part owner can buy the other out. When you choose this option, you pay the deposit back and a percentage of the growth of the property value.
- Sell the property and repay the mortgage. This should only be an option if your property is worth more than the outstanding loan.
- Rent the property out until property values improve.
As with any property purchase you should seek legal advice before you sign on the bottom line.