Home Ownership for Unmarried Couples - Part Two

Note:  the first part of this series can be found at http://ohiolegalnotes.blogspot.com/2015/02/home-ownership-for-unmarried-couples.html

In the first installment of this series, we discussed ways we help unmarried couples enjoy the same sorts of rights as married couples with respect to real estate.  Now, we'll examine some of the issues that come up, usually when the relationship is at or near its end.

When you bought the house together

Assuming both of you have sufficient good credit, there's no reason the two of you didn't buy a house together and sign the loan together, just like a married couple.  There are two documents you should look at to determine what your rights and obligations are:  your deed (see http://ohiolegalnotes.blogspot.com/2015/01/do-you-know-who-owns-your-house.html), and the promissory note ("note" for short), which is the document which begins with the words "I promise to pay . . .."  The deed will tell you who owns the house, and the note will tell you who has to pay for it.

Everybody who signs a promissory note to a bank is jointly and severally liable to make the payments.  This means if you are one of the people who signed the note, the bank can require you to pay the entire obligation, regardless of whether the two of you are still together or whether you still live in the house.  There is no "rule of halvsies" -- your lender is not obligated to accept half of the payment from either one of you.  If the payments aren't made in full, regardless of what your understanding is with each other, your credit will be severely damaged. 

We still see people who have quitclaimed their interest in the property ("signed over the deed") to a former significant other at the end of the relationship, thinking that by taking their name off of the title they are no longer responsible to pay for it.  That's not true and it's the worst thing you can do.  Once you give up your interest in the house, you also give up a lot of leverage you'll need to protect any equity you've built up and your credit.  Stay in title and make sure the payments continue to be made -- once the house is refinanced or sold, that's the time when it's ok to sign a deed.

If one of you is moving into a house the other already owns.

Again, it's important to check the deed to see whose names are on it.  Before you make significant investments in your partner's home,  you'll want to be clear whether former spouses or others still have a record interest in the property.  If they are, it might be a simple oversight that we can help correct; however, it might also indicate that the other people on the deed still have rights in the property.

If you are planning to make a significant up-front investment in your partner's house -- for example, to make repairs or to catch up payments on a mortgage -- we can do either a lien search (to reveal record liens on the property from the time your partner acquired title) or a full title examination (to reveal anything of record affecting marketable title).   A little planning now can avoid a lot of aggravation -- and potentially save you a lot of money -- down the road.

Assuming that you are moving in together for the long haul and both of you will be contributing financially to the household, it's a good idea to have a conversation about what each of your expectations are.  If you agree on how much the person moving in is contributing and that you want that person's financial investment to be protected, there are a couple ways to approach the issue.

One approach is to enter into a roommate agreement.  We aren't suggesting that the host needs to be like Sheldon Cooper on The Big Bang Theory, but a basic understanding of what you each expect to pay for (and on the flip side, get reimbursed for if things don't end well) might save the two of you a lot of aggravation later on.

Another option is for the host to sign the equivalent of an open-ended line of credit agreement and record a mortgage to protect whatever the party moving in pays towards the household expenses.     Like a reverse mortgage, the balance would increase as the person moving in makes contributions.  The real beauty of this planning technique is that the person moving in is only secured to the extent you have agreed, and only to the extent they have actually contributed.

The mortgage option is not only helpful in protecting your interests between each other, it protects the investment a person moving in makes from other creditors of the homeowner.  For example, if the person moving in has contributed $10,000 which is secured by this mortgage, it would have priority over a judgment later filed against the homeowner. 

This option also protects the investment if the homeowner dies and doesn't provide for the person moving in by will, transfer on death affidavit or other means.  While the homeowner's named heirs may inherit the home, it will remain subject to the repayment of the balance due -- an amount that could provide a nice down payment somewhere else should the other person have to move.

Whether or not to add your significant other to your deed.

It might seem easier to just add your new significant other's name to the deed than to take the steps outlined above.  However, here are some things to think about before you do:

• If there's already a mortgage on the house, most mortgages contain a due on sale clause, which provides that if the homeowner conveys any interest in the property, the lender has the right to declare a default and foreclose.   Ask first, and if your lender won't consent, you can always refinance the loan into both of your names, recording a deed to put the home in both of your names at the same time.
• Think carefully about how you want to hold title:  as tenants in common or in survivorship (for the difference, see my previous article at http://ohiolegalnotes.blogspot.com/2015/01/do-you-know-who-owns-your-house.html).
• Whatever interest you give to your significant other is a completed gift effective when you record the deed -- regardless of whether the relationship works out down the road.  If the new deed is simply from you to the two of you, you've given away half of your house, effective immediately, no strings attached.

If the significant other doesn't bring anything to the table financially, adding them to the deed might also add their financial problems.  Consider a transfer on death affidavit to make sure they have a place to live after you die, because a transfer on death affidavit doesn't create any present interest in the property and you can change your mind later if things don't work out.

It's never too late to agree.

While it's usually much easier to clarify your understandings at the outset, there's nothing that says the two of you can't come to an agreement later on -- even years after moving in, and even if the relationship is in decline or over. 

Who might have the upper hand in the event of a dispute is going to depend on a lot of factors, such as how much the person who moved in can prove they invested and whatever evidence a person can produce to prove that there was an understanding that those amounts would be repaid if things don't work out. 

Of course, whenever a lawyers says "it depends," that gets expensive. The more money that is in dispute, the higher the stakes are and the more sense it makes for the parties to come to an agreement and move on.

Home Ownership for Unmarried Couples - Part One

Moving in together or buying a home together is a big step

Short of getting married, moving in with your significant other is the biggest step you will probably take in your relationship.  Both of you will call it "home" and you'll be building a life together there.

The State of Ohio, however, views things differently.  When it comes to real estate, Ohio recognizes only two kinds of people:  married and unmarried.  If two people aren't married and they share a home, it doesn't matter whether they have been together for fifty years -- the rules are no different than two strangers who just met and bought a house together on a whim. 

This can present problems for people who are in a relationship but who are not married to each other, but most of those problems can be avoided with a little bit of planning.  We can help.

Ohio law favors married individuals.

If you are married and either you, your spouse or both of you own real estate, Ohio law provides protections for spousal rights, both during the marriage and when the marriage ends, in the form of dower, estate rights and divorce/dissolution laws. 

Before we think about how we can give you those same sorts of protection, let's review how things work for married couples. 

1.  Dower:  What being married means when it comes to your real estate.

In Ohio, if you are married you have a dower interest in your spouse's real estate, and they have a dower interest in yours.  Dower is a centuries-old concept originally designed to protect women from being excluded from their husband's homes, and provides that each spouse has a life estate (the right to live rent free for the remainder of your life) in one-third of the other spouse's real estate.  In medieval times, this meant if a man owned 30 acres and kicked out his wife, she would be entitled to live on 10 of them rent free for the rest of her life. 

The concept survives in Revised Code Section 2103.02.  Dower rules (in the probate code as well as in Chapter 5305, the title relating to real estate) are complicated, antiquated, and rarely invoked, but discussions to abolish it usually end as quickly as they start.  Like the paper dollar bill, for whatever reason people still think it makes sense to hold onto it.

A married person can still purchase real estate in their individual name, but in order to mortgage, sell or grant any other rights in that property, their spouse will need to sign the deed, mortgage or other document as well.  This is called releasing your dower interest, and it effectively prevents either spouse from mortgaging or disposing of property without the other's knowledge.

2.  How Ohio protects married people when one spouse dies.

If a married person dies, surviving spouses have significant rights which in most cases assure that they will inherit a significant part of your estate.  Among these rights are the rights to apply for an allowance for support, the right to live in the "mansion house," and the right to elect against the will if their spouse's will didn't adequately provide for them. 

3.  The other way marriages end:  divorce and dissolution

When things don't work out and a couple files for divorce or dissolution, the Court will divide the marital property of the parties, including real estate either of them acquires during the marriage. 

Real estate which one spouse or the other owns prior to the marriage (and which is still titled in that spouse's name) may be deemed separate property, meaning that the other spouse has no interest in it; however, if the other spouse contributes money or property to the home, the Court may impose an obligation to reimburse a party for those expenses.


How we duplicate marital rights for unmarried couples.

The protections described above only apply if you are married.  The law won't protect you if you aren't married and one of you dies or the two of you decide to split up.  That doesn't mean you can't protect yourselves, and we can help.

1.  Unmarried "dower." 

As explained earlier, dower is mostly an outdated concept, but there are some valuable aspects of it:  first is that neither spouse can effectively convey or mortgage their separate interests.  Second is the idea that neither party can be left "out in the cold."

Since any two parties can sign an agreement which outlines the rights of the parties, we recommend cotenancy agreements for unmarried parties who own real estate together.  These agreements, which act like a sort of partnership agreement, can specify the rights of the respective parties to give each the best (and avoid the worst) components of dower.  For example, these agreements can specify:

• That neither party can sell or mortgage their interest without the other's consent;
• That neither party will file a partition action;
• That if you decide to call it quits, that the property will be sold or either will have the option to purchase the other's interest;
• How much to compensate either party if the relationship ends.

2.  Mimicking a surviving spouse's rights upon death.

Since significant others have no rights to their partner's estates upon death, without some planning the survivor will become partners with their significant other's family.  The simplest way to avoid this is to write a will designating that your real estate is to be distributed to your significant other, but there are some problems with relying solely on a will:

• Creditors of your significant others can force the sale of the real estate to pay debts;
• Family members of the deceased have the right to contest the will (rare but it does happen);
• Wills do not become public record until a person dies, and it is the most recent will which will be admitted.  We have seen cases in which significant others have been very disappointed at what the will actually says.

A will is a good idea anyway, but there are some additional tools that better protect a survivor's interest, including:

• Provisions in a cotenancy agreement providing that either party has the option to purchase the other's interest upon death;
• Survivorship language in your deed (this avoids the estate entirely);
• Transfer on death affidavits (this also avoids the estate);
• Mortgages to protect a non-titleholder's cash investments.

There's an infinite number of ways we can help structure this for you; a face-to-face conference is the best way to determine which option or options are best for your situation.

3.   Don't plan to fail . . . and we aren't talking about the relationship

Some couples enter into antenuptial (prenup) agreements before they get married.  This doesn't necessarily mean they are planning for the relationship to fail -- in fact, we find that the possibility of divorce is only one of the reasons people consider them.   Couples also are interested in making sure the financial part of their marriage is clearly defined, both with each other and with each other's separate families. 

With prenups, the catch is that you have to enter into them before you are married or they aren't valid.  This is one instance in which unmarried couples have an advantage, because you can enter into any agreement relating to your real estate at any time, as long as there is consideration (something bargained for) by both parties -- even if you already own your real estate together.  Provisions in a recorded cotenancy agreement can save both of you an additional layer of pain in the event the relationship ends while you remain co-owners of real estate together.

To quote an old cliché, failing to plan is planning to fail.  If the two of you can't openly discuss the financial aspect of your relationship and what your expectations are if for whatever reason the relationship ends -- we recommend you rethink the relationship.


Planning ahead doesn't have to kill the mood or your bank account.

If the suggestions in this article throw a damper on the moment for you, it might -- particularly if you are in a relationship with someone who is looking to take advantage of you.  That would be good information to have now rather than later.

However, if you are in a mature, caring relationship, taking the steps outlined in this article can protect both of you.  The cost of planning ahead is insignificant when compared to the money you could lose if things go wrong or one of you dies.

Whether or not you eventually decide to get married, protecting yourselves and your investments in the most valuable asset most people will ever own is a good start to building your life together.


Coming up:

This is the first in a series of these articles.   Future installments will address:

• Tips and myths for couples planning to buy a house together, or when one of you is moving into the other's house.
• Why I haven't mentioned trusts and LLCs as a possible planning tool.