Nearly every couple who move in together believe that their new living arrangement will work out. But despite that optimism, a good percentage of those who live together before marriage end up splitting up. So no matter what you think about the durability of your relationship, it’s a good idea to plan ahead if you and your significant other decide to take this particular leap.
Buyer beware
This is especially true if you plan to purchase a house or condo together. As with any home purchase, you need to avoid certain mistakes, like failing to get a home inspection or ignoring expenses beyond the mortgage payments. But if you’re buying the home as an unmarried couple, you also need to think about how the title to the property can affect a possible dissolution of your relationship.
As an unwed couple, you have two basic options for how to title the property: either as tenants in joint or as tenants in common. If you choose to buy the house as tenants in joint, you could incur significant legal costs should you ever split up.
The benefits of tenants-in-common
On the other hand, if you hold title to the property as tenants in common, you each have an undivided fractional interest in the property. This means that you each enjoy the rights of a full owner but you also can transfer your ownership interest freely. This differs from a jointly owned arrangement, in which both owners must agree to a sale.
Moreover, unlike joint tenancy, a tenants-in-common arrangement can divide ownership unevenly—for instance, one partner owns 40 percent of the house, while the other owns 60 percent—so couples know exactly what they own and what they are entitled to should things go south. Consequently, tenants in common don’t have to waste time or money (in legal fees) arguing over an equitable distribution of ownership.
Another option is to have only one person on the title, and to set up the other person as a renter. In that scenario, only the title holder would be gaining equity (and taking on liability) for the property. Still, depending on the terms of the lease, there may still be ownership entanglements over time if both partners are contributing to the upkeep of the home. A cohabitation agreement can help reduce ambiguity and help clarify the terms of the financial agreement.
Remember, even arrangements entered into with the noblest of intentions can fall apart. When you decide to live with someone before marriage, you need to think calmly about all the potential ramifications. For home buyers, specifically, that includes the potential benefits of owning the property as tenants-in-common and about how such an arrangement could help you avoid costly future litigation.
