Statistics show that more non-married couples are taking the leap and buying a home together. However, if you are not married, be aware that homeownership is treated differently for unmarried couples in many ways.
Understanding these differences is important with such a big asset at stake.
We chatted with local attorney and estate planner Peter Brautigam for ideas to protect against the unexpected.
First, consider a co-habitation agreement to spell out how expenses are shared. While the obvious expense is the mortgage, other considerations include utilities, repairs, major remodeling and everyday upkeep. This agreement, which is similar to a pre/post nuptial but much more in-depth, also should define ownership of other assets, as well as issues such as the rights, duties, obligations and responsibilities common in a relationship.
Unfortunately, the agreement also should be just as detailed and specific about what happens if the relationship dissolves -- amicably or not. Whether due to a separation or death, the disposition of property can be more complicated than its acquisition.
Depending on the relationship, a different agreement might be better suited for the non-married couple. For example, a limited liability company -- an LLC -- can be formed for any lawful purpose. An LLC also can provide asset protection and transfer of ownership (in life and death) while letting partners retain control. However, to dissolve the LLC, a court must determine the company is unable to continue with the purpose for which it was formed.
Because the non-married do not have the same tax exclusions as the married, property title changes might bring tax consequences. Selling a property might be a reportable tax event. How do you allocate the $250,000 exclusion of gain on the sale of a primary residence? Dividing the property and assigning assets as a gift from one partner to the other might also create a taxable event. Planning for the worst in the beginning is the best way to preserve the maximum value of the assets in the end.
Second, follow through and coordinate the intent of the agreement with both partners' written wishes in their wills to minimize challenges from outside the relationship.
While it is difficult to imagine the worst-case scenario, the death of one partner can cut off assets from the living one. Without proper documentation, the remaining partner could have a difficult time proving ownership rights and be left to fight relatives for home and assets.
Third, consider obtaining a term or decreasing-term life insurance policy to benefit your partner and family. In many relationships, one partner earns more than the other. This disparity can create a financial hardship if the breadwinner dies. A life insurance policy can provide an extra measure of security and give the remaining partner some breathing room. For a disgruntled family member cut out of a will, an insurance policy might be just enough to soothe feelings and prevent an unnecessary challenge.
Your home is one of your biggest assets and deserves extra precautions to protect it. For a non-married couple, putting the legal touches on your relationship can give you some of the benefits of your married counterparts.
Clair and Barbara Ramsey are local associate brokers specializing in residential real estate. Their column appears monthly in the Anchorage Daily News. Their e-mail address is firstname.lastname@example.org.