Bear with me on this one, because I am gonna sound like your dad on this. A million apologies in advance. Also, this post will kick off what I will call “The Pitfalls” series, which will dive deep into the pitfalls of things people do commonly with regard to their finances.
This one is gonna be more geared to those in my generation (millennials) and younger, as co-habitation has become more commonplace. Whereas your parents and grandparents frowned upon “shacking up”/”playing house”/”living in sin”, it is now seen as a pretty good idea to live with your partner before you consider marrying them.
But that’s not gonna be the focus of this post. We’re gonna talk about the risks that come with co-ownership of a home.
Before I go any further, I’m gonna say it right now: you really shouldn’t co-own a home (or any property) with someone you are not married to. Not for any moral reasons, as I happen to currently live with my fiancée (and we moved in together before getting engaged). The reasons are purely legal and financial and we’re gonna explore some of them.
Taking the Next Step
Imagine you and your partner have been dating for some time now, maybe a few months or a few years. You two inevitably decide that it’s time to move-in together and you begin renting a 1-BR apartment. Congrats on reaching that important relationship milestone.
As your relationship progresses, things seem to be going really well. Relatively few fights, shared responsibilities, the joy that comes with having your own place together. But then, as each year pases, you both see that your rent starts to go up and you two start to feel like you are wasting money on rent. Suddenly, the idea of owning a house pops into your heads and you think about the benefits: mortgage is fixed, ownership of an appreciating asset, not throwing away money on rent, etc, etc.
So you two resolve to buy a house together, because neither of you wants to not have equity, and you begin the process of buying your first home!
Only one problem: you aren’t married…
Why You Really Shouldn’t
There are several things to consider if you and your partner are considering owning a home together.
One, a mortgage is typically for 15 or 30 years and when you own a home with someone you aren’t married to, you run the risk of being stuck on the mortgage should your relationship end. Sure, there’s no guarantee that when you own a house with a spouse that you’ll stay married, there is a mechanism for deciding who gets the house: divorce. With an unmarried couple, there is no clean mechanism for detaching oneself from another when it comes to a house. Deciding who gets the house, or how much equity one is entitled to may get very expensive and very messy.
Two, if both of you are on the mortgage, then depending on who retains the house, your credit is now dependent on your ex-partner faithfully making on-time payments every month… for 30 years if the mortgage can’t be refinanced in one person’s name.
Three, what happens if one of you were to die? Sadly, the laws in the United States do not recognize boyfriend/girlfriend/partner as a legal term when it comes to things like assets, especially in the case of inheritance. Outside of a will, neither you or your partner are entitled to each other’s portion of the equity in the house. THAT gets passed onto the surviving relative (exactly who that relative is will differ from state to state). If your partner dies while you two co-own a house, you might end up co-owning it with their surviving relatives.
The Best Way To “Own” A House Together
In my opinion, the best way to own a property with someone you aren’t married to, is to marry them and then buy the property together. In the US, the law provides certain benefits to married couples that simply don’t exist for non-married ones, including inheritance and taxes.
However, if you and your partner still insist on owning a home together while unmarried, it’s not bad idea to speak with an attorney and have an agreement drawn up (that you both agree to) that address each person’s stake in the house, what happens in the event of a break-up, and what happens in the event the other dies. It may provide some protection in the event the worst happens.
The NEXT best way to own a house together is simply for one person to have only their name on the mortgage and title, while the other pays rent. That way, in the event of a break-up, both people aren’t stuck together. And if one of you dies, then it’s a lot simpler for the other in terms of what to do with the house.
It’s not exactly romantic, but these are some of the issues you should consider when discussing home ownership.
Do you disagree? Did I miss anything? Let me know your thoughts in the comments.