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Marc A. Hebert's Money Sense: Unmarried couples buying a house have much to consider

By MARC A. HEBERT
October 20. 2017 9:54PM




Maybe you have been together for a while, maybe a long while, and finally decided it is time to buy a house! You are not alone. According to a 2016 survey by TD Bank, 1 in 4 homeowners said they purchased a home with their significant other before marriage. It's a big step and one with large financial implications. Here are just a few considerations:

It is easier to agree on house finances while love is in the air. It is a different story when things go wrong. Review all of the theoretical scenarios. The biggest of these is what happens if you decide to break up? Besides this, what if one of you becomes unemployed, disabled, dies, or goes bankrupt? The answers to these questions need to be decided and documented in the form of a legally binding home buying agreement. This can make it easier to resolve disputes without litigation. In addition to the above situations, the agreement can stipulate who pays for the mortgage and other housing costs. It can designate which party has the right to buy the other one out and specify how the property will be appraised.

Before buying, make sure each can qualify for a loan. Both parties' credit ratings will be scrutinized. Be careful of situations in which one of you has the debt to an existing home. Once you have a mortgage, a bank might not let you simply add a name to the title.

Diligently review the title. Both of you should understand how the title works. The laws dealing with the distribution of property when a couple splits up or a partner dies are vague when a couple is not married. You and your partner can own property in one of many ways, including:

. Joint tenants with rights of survivorship

. Tenants in common

. Individually in one of your names

. In trust

Joint tenancy with rights of survivorship means that when one partner dies, the surviving partner automatically owns the entire property. One benefit of owning property this way is that it might make it more difficult to sell a share of the property without a partner's consent. It also might offer creditor protection because neither partner owns a separate share. Instead, both own equal rights to the entire property.

As tenants in common, you and your partner each own a separate and divided interest in the same real property and can leave your portion of the property to whomever you choose in your will. Creditors of tenants in common might have an easier time attaching the property than if it were owned jointly with rights of survivorship.

If you do decide that only one of you will be on the deed, you need to be aware that the person named on the deed may be able to sell the property without the consent of the other.

By holding the house in trust, you will be able to spell out the rights and obligations of each in the trust document.

Beyond buying property, this is probably a time you could talk about marriage. While relationship advice is out of our league, this might be the time to make the decision. Title and taxation issues are different if you are married, and changing your marital status after you buy the house can have tax and ownership consequences.

There are a lot of items to consider if you are not legal spouses. There are tax consequences as well. So be sure to consult an experienced attorney, accountant and financial planner to help you through the process.

Marc A. Hebert, M.S., CFP, is a senior member and president of the wealth management and financial planning firm The Harbor Group of Bedford. Email questions to Marc at mhebert@harborgroup.com. Your question and his response might appear in a future column.


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