Rewind to a couple of generations earlier, and the idea of buying a home as an unmarried couple was most certainly a social taboo. Those days are over in today’s society, yet the assumptions about living together and marriage have lingered on in property law.
People living as a married couple or in a civil partnership in the UK stand at approximately 23 million which surpasses the numbers of those cohabiting at around 5 million. There are key factors when looking at the legal differences in homeownership.
For example, marriage secures a legal right to the property for both partners, despite the fact that one person in the marriage may have owned the property on a sole basis previously. In the event of separation or divorce, the law concerns itself with the equal distribution of assets. This bestows power to the courts to ensure that both parties receive a fair settlement in terms of what happens to the property.
None of these provisions, however, exist for unmarried couples who share a home owned by one of the couple. Instead, a stubborn myth preludes around the idea of ‘common law marriage’. It leads people to believe if you live as a couple for long enough, you get the same protections, regrettably, this is not law at all. Therefore, if you are considering buying a property you would be advised to understand what the law does stipulate
Joint Tenancy vs Tenancy in Common
When you buy a property with another person, there are two legal models for co-ownership. Joint tenancy or tenancy in common. A joint tenancy is a model on which property ownership rules for married couples are based. It assumes a 50-50 share in the property. If one partner dies, their stake passes to the other.
A tenancy in common treats different people in the same property as separate legal entities. They may hold stakes of different sizes (e.g. a 60-40 or 70-30) split. If one of them dies however, the survivor has no legal claim to their share unless inherited via a will.
If one person in the partnership is putting up the deposit for the purchase or is going to contribute more to pay the mortgage, then a tenancy in common allows them to agree upon a fair split.
The downside is, the share of the stake you decide when you bought the property, can be affected by future changes. If you start off paying a 30% share of a mortgage but end up paying half, you might feel short-changed, particularly if you later split up and your partner claims you are only entitled to a 30% share.
The same applies if you move in with a partner who owns a property. If you don't enter into a legal relationship, then you are simply entitled to nothing if you split up. You might be able to prove you owned a stake by showing you have contributed to the mortgage or made material improvements to the property.
Regardless of the shared ownership model, you agree with your partner, your responsibilities in relation to the mortgage are a separate consideration. If you take out a joint mortgage, then you assume joint legal responsibility. This continues after you split up, even if one partner moves out of the house.
If a mortgage is in one party’s name only, then that person is responsible for maintaining the payment of that mortgage. This can have dire consequences if the other partner decides to leave and cease paying a share.
Buying Stakes and Selling Property
If a cohabiting couple decides to separate, the conversation around what to do with the property revolves around two options; one partner buys the other out of their share and retains ownership of all of the property. The alternative is that the house is sold, and the couple shares the proceeds of the sale.
Financial factors will sway couples to be inclined to one way or the other. For example, if they can't afford the mortgage repayments, then ultimately, they are forced to sell the property. If one person can afford to buy the other out but not vice versa, this leaves an easy option. Notwithstanding, there can be disagreements; both partners wanting to continue living in the property, or one wanting to sell but not the other. The courts are there to resolve such issues.
The legal position for most married couples is clear whereas legalities can get messy for unmarried couples.
A formal cohabitation agreement before you buy a property with a partner could save you a lot of heartache in the future. Cohabitation agreements carry more legal weight than prenups because, when it comes to property, the law leans towards a 50-50 split of assets, even if a prenup states otherwise.
A cohabitation agreement gives you the chance to sit down collaboratively and discuss the vital issues. For example, you need to consider the share of the stake, who contributes what towards the mortgage, which type of ownership model you both want. You can also consider eventualities such as what you both want to do with the property should the worst happen. These are all prudent topics to cover prior to making a large commitment such as buying a home. You hope you won't have to consider what happens if you split up, but it is better to agree on these issues before you buy, rather than dealing with them amidst the emotional turmoil of a break-up.
As with any such financial matters, it is a good idea to take independent financial advice from a specialist, who can explain your options in greater depth and what the outcomes might be. At Capital, we are always happy to take your call. Contact us today.