That seems unwise to purchase a house with another person you’re not married to, unless everything is specifically, contractually spelled out.
Now if this couple is married? I can’t even conceive of you pay this, I pay that. We have always commingled our finances, whether one person makes more than another, this is OUR money, OUR house. Doesn’t matter if one person makes zero. I can’t imagine doing otherwise in a marriage.
There’s no one right way on how they spend their money. Whatever works for the couple. Some will commingle, others will do partial commingle. There will be some who keep their finances totally separate. None of them is absolutely right or wrong. What works works. No one need to imagine how others manage their finances. Is commingle most desirable? I am sure for some. For others, not so much.
No right or wrong way.
But in the case you are asking about, is seems that you are talking about a couple that hasn’t commingled their finances?
In that case, I think it should be spelled out exactly how and who provided the down payment and how that would affect their ownership in the home. And how long the mortgage would be paid and in what percentage until ownership equalizes.
The way I look at it, just like sharing household chores, couples should share financial burdens in a way that works for them. Working spouses help out stay home spouses around the house as much as they can. Same for the finances, lower earners can take on financial burden whatever that amounts to to a particular couple.
@deb922 Does it need to be spelled out? The house will be co-owned 50/50.
I do.
There are so many variables.
What if partner 1 pays 20% on a $600,000 house. So $120,000. Mortgage is $3000, 30 year fixed. Plus insurance and property taxes.
It would take a while for partner 2 to get to their 20% ownership. And who pays for taxes and insurance? Is that pro rated? Who pays for any repairs? My kids found out that owning a home also comes with the woes of having to pay when something goes wrong.
What if after 2 years, the relationship goes south? The home value hasn’t gone up or goes down? Will partner 2 give partner 1 their $120,000 back because they won’t have paid much principal back of the $480,000. Again what if that $600,000 house is worth $800,000. Does partner 1 only get back their initial investment? I would have to see what the profit is after paying off the mortgage.
I guess I would plan for the worst and hope for the best.
Someone smarter than me can tell me if I’m wrong on the math here.
Again I’m assuming that finances are separate
I second preparing some sort of legal document that sets out the couples understanding and terms as far as owning this property if they’re not approaching it as an “our purchase” (and for example, the one contributing the downpayment would expect it to be repaid in full out (with or without interest of some amount) of the proceeds of any sale or other specified divisions of the proceeds).
One of the first cases I dealt with when I started practicing as an attorney was representing a woman who had purchased a property with her fiancé before they were married. Ultimately they did not get married, the woman wanted to sell the home, and the man did not. The man was living in the home, but had stopped paying his half of the mortgage and related expenses. The woman was paying all of it because she didn’t want the house to go into foreclosure and negatively affect her credit.
If the couple is married, divorce laws will address some of the issues the woman I represented encountered but if the expectation/agreement is something specific better to memorialize it in writing prior to the purchase.
ETA: just as a reminder, which, I’m sure most if not all people on this thread know, when you sign a mortgage note with one or more other persons each of them are responsible for the entire amount of the note, regardless of what other agreements may have been signed between the borrowers. The bank isn’t a party to those agreements.
They will combine their finances. It makes paying bills simpler. Their savings, after paying all the bills and funding retirement accounts, can be split according to a formula. 4 should get more of the savings, I’d think. Not sure how they will split. Once done, they will each assume 50% of the house. If the house loses/gains value, they each assume 50% of the loss/gain. 1 may not recoup 20% down payment. It is a risk 1 has to take. If 4 is paying mortgage for longer than 10 years, 4 will be paying more than 50%. That is a risk for 4.
@vpa2019 In your example, if they split the expenses my way, in some way, it could have been slightly less messy. The thing is if one party is determined to make the other’s life hell, it is still a big headache even with writing.
If down payment is 100,000, one contributes 20,000 and another contributes 80,000, it means one has 80% equity and another has 20%. When they sale the house and net 200,000, then the 80% equity owner would get 160,000 and the 20% owner would get 40k.
My kid has that in the prenup. They both contribute to their household account in certain proportion. Rest of it goes into their account.
One of mine purchased their first home before they married. The majority of the down payment was her money. They explored different options and what felt right for her was instead of unequal ownership they signed a legal and recorded document that if the house was sold or refinanced she would get her down payment returned to her. The document I think stated that a certain dollar amount came from her sole and separate property. They bought in an area that properties rarely lose value. They married and sold that house. She got her money back. On the 2nd home they used the profit from the first home as the down payment.
You’re right about the headaches but having something in writing is better than ‘he said, she said” when trying to enforce the agreement.
And not to get into the legal weeds, but some agreements/contracts must be in writing to be enforceable.
Thanks.
I know my daughter is insisting on a prenup. She thinks it’s a prudent thing to do.
After seeing her uncle go through a very contentious divorce, she’s even more determined.
It’s an insurance. You put it in a safety box and hope you would never need to pull it out.
It gets more complicated if the person who didn’t put down the 80% is paying a larger part of the mortgage though, I think. If both are 80/20, then I agree, but it the down payment is 80/20, and the payments are 20/80, it’s a different “calculation.”
That wouldn’t happen if you do it right. It would be a different calculation based on rental market rate and how the couple should decide to split up their monthly household expenses. The property would be treated as an investment, and the couple would in essence be paying rent. The rental income would be used to pay for the mortgage and taxes on the property. I know some couples split their share based on income and some just split down 50/50.
Agree with this rent concept. I would however consider treating the down payments and the principal part of mortgage payments as “loans” (this money returned first to each partner in any sale), with the two partners sharing the “equity” (upside and downside) 50/50.
People can do what they think is “equitable” and have an agreement. I personally think if I put down 80% of equity then I should get 80% of upside and also the downside.
So, what I have seen is that the cash invested gets returned, but the equity profit or debt is split, either 50/50, or any other agreed ratio.
My son and his GF drafted an agreement when they bought a house. (They’ve been together seven years.) They both have responsible, professional jobs, but he makes a lot more. Mortgage is in his name, he put up most of down payment. She accrues a percentage of the property each year as they are together longer, and also contributes to the mortgage payment. He wanted to be generous to her, but also have some protection for himself. He and she had already discussed various options and implications by the time S asked us for advice. They live in CA, so community property issues are big. We didn’t help with a down payment, just advice when asked.
S paid an attorney to draft an agreement, but the guy sent him an old document that wasn’t even relevant, then ghosted. S should have reported him to the bar but decided against it. H (an attorney, but not in CA) and S did research and put together a document, and S found a different CA attorney to review it and make sure all the bases were covered.
I am an advocate for an agreement dealing with a purchase of a home if not married. I would probably advocate for a prenup if the two people have drastic different financial situations. I am sure this can be the case more and more these days as people wait to get married.
I do believe that once married finances should be comingled and each person should have full view of expenditures and savings amounts. I believe if we can’t fully agree on how we live our lives financially then we probably shouldn’t be married.
I am all for sharing all finances if you get married fairly young, and that’s what you choose to do. But if you get married later, have kids from previous marriages, and none from “new” marriage, things get more complicated/there is more to think about. If one person comes to the marriage with substantial equity in a house, and the other has none, that’s something else to consider.