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Dear Quentin,
My boyfriend and I would like to move in together in the next year or so. He bought his house about a year ago, and he has paid off about 25% of it. We both would like for me to gradually become a partial owner. We do not plan on getting married.
I do not feel the need to become a 50% co-owner — nor would I be able to become one any time soon — but we just want to make sure that money I contribute to the remainder of the mortgage and any money I contribute to home improvement would not just be considered as rent.
What procedures should we follow to ensure this situation is fair for both of us?
Starting New Life Together,
Dear Starting,
Your letter gives me pause.
Because your boyfriend already owns the home, the only way to add your name officially to the mortgage would be refinancing. With interest rates rising, it would be unwise to do so at this point, even if that was on the cards.
You can be on the deed without being on the mortgage. This can be done through the title insurance company or property recorder’s office, and is usually a matter of filing some paperwork and paying a fee. It’s important to consult a real-estate lawyer before doing this, as clauses in mortgage contracts can require the loan to be paid in full if there are changes to the home’s ownership. Adding your name to the deed could constitute such a change, depending on the loan’s language.
That said, it seems like your boyfriend is not considering putting your name on the deed. Given that you are about to move in together, and he has already paid off 25% of the house, I can see why he would be reluctant to do that.
What you’re left with is a “one foot in, one foot out” scenario where you have come to a sort of middle ground that appears to give you more peace of mind than actual financial security.
If you were to agree upon a 25% stake for yourself, assuming that it’s open to renegotiation, you could sign a cohabitation agreement where you settle upon monthly payments and a stake in the home in the event that you split — including terms of a buyout or eviction should it come to that — or your boyfriend predeceases you. That would also include details on upkeep of the home, and how much you should pay if there was a need for a major improvement such as a new roof. It’s far from ideal.
“As a financial adviser and lawyer, we would have to presume that the relationship will not turn out OK because that’s one of the probabilities, so it’s a good thing to prepare for this,” Austin Frye, a lawyer who practices estate law and is the president and founder of Frye Financial Center in Aventura, Fla., said. As for financial arrangements? “If things don’t go well in the relationship, they don’t necessarily have good outcomes.”
For those reasons, Frye supports the idea of a cohabitation agreement. “If you don’t sort out these issues now, they’re always out there. They’re unromantic, but the point is if you can get it out of the way so neither of the individuals involved in this relationship have to worry about it, and that in turn could enhance the relationship and not interfere with the relationship.”
State laws have more real-estate protections in place for married couples. Here’s how it works for married couples, which may be useful for you down the road. Typically, a married couple purchases a property as “joint tenants with rights of survivorship,” where they would each own 50% and would inherit the property upon the other’s death. Alternatively, a married couple where one partner moves into the other partner’s home can set up a life estate, a formal agreement that would allow the party without ownership rights to remain there for his or her life, thereby avoiding probate court.
Linda Farinola, president of New Jersey–based Princeton Financial Group, described your plans as “messy” and advised you to consult an attorney. She told me, “The only other time I’ve seen this is if it’s a business property and someone sets up an LLC, and they set up who gets the income and assets, but that wouldn’t work for a personal property. They would need to draw up some kind of contract, and leave it in his name. Or put the property into a living trust, and have the trust stimulate some formula that she would get a percentage should he predecease her.”
Warning: Your boyfriend could change the terms of that trust, based on the trajectory of your relationship. Ultimately, I’m not sure this arrangement serves your boyfriend, who has taken all the risk with this mortgage, providing the deposit, and being responsible for the management of the house. And, as I outlined above, I’m not sure it serves you well either. You may be better off paying less than market rent, and saving for your own down payment on a home. You can always revisit that arrangement later if you decide to get married and/or have children together.
But having your own financial independence is at least one way to feel empowered in a relationship and lead a happy, successful life.
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