It probably doesn't surprise you that there are many reasons not to buy real estate before marriage.
If you're single and not in a relationship or cohabitating, this article isn't for you. But if you're considering purchasing a house with your SO, read on…
The data tells us that marriage is getting less popular and homeownership is in even more demand.
According to the this article, marriage rates are plummeting.
And Time’s MONEY recently found that 40 percent of millennials actually think it’s a good idea for couples to buy real estate together before they marry.
What you don’t know, though, is that buying a house with someone you aren’t married to, could be a terrible mistake.
Here are five reasons not to buy real estate with your SO:
- Nobody likes lawyers.
Most people don’t realize that a civil marriage is little more than a contract that establishes both obligations and rights.
One of the most time-consuming and detailed aspects of adequate contracts is guiding the handling and disposition of real estate in cases of likely and unlikely outcomes.
The marriage contract does this very nicely without the parties having to foresee and negotiate every potential turn of events.
Many issues between unmarried real estate co-owners can be avoided by hiring two attorneys to draft a legal agreement. And yes, you each should have your own attorney.
A cohabitation agreement protects both parties from unnecessary costs and litigation if your cohabitation breaks down for any reason.
The major issue here is that lawyers are expensive.
For example, you can get married in most county courthouses for less than $100. But a good and airtight cohabitation agreement can run you anywhere from $5,000 to $10,000 or more.
- You could break up.
The most obvious potential trigger that could turn the real estate purchase sour is that you decide to go your separate ways.
If a breakup becomes unavoidable, who stays in the house? What if neither of you can afford the full mortgage? Does the person who stays rent out a room? For how much? And if the rent doesn’t cover costs like utilities and taxes, who pays the remaining?
Will you sell the house? Who pays for the water heater that explodes the week after you move out? What if you want to sell and your former partner doesn’t?
While these questions aren’t fun to think about, they’ll be even less fun in the unfortunate event of a breakup.
- There could be titling issues.
Did you know that how you title the property dictates what happens to your share of the home? And that's not only if you sell the real estate. It's also a consideration in the event one of you dies. Again, not fun, but it has to be considered.
Titling occurs the day you sign the paperwork and the house becomes legally yours. It's critical that you do your research beforehand. The escrow officer will NOT act as your attorney or advise you of your rights.
For example, if you sign as Joint Tenants with Rights of Survivorship, each of you owns exactly 50 percent of the property. Even if one of you paid more for the deposit or will pay more of the mortgage!
In this arrangement, if you die, your half of the property automatically becomes your partner’s.
In other words, you don’t have the option to leave your equity to your parents, siblings, nieces, or other heirs.
If you take title as Tenants in Common, you can stipulate that someone owns a larger share of the property. This is really the only arrangement that allows you to leave your portion of the ownership to someone other than your partner.
You can title the property to a living trust, but again, drafting that document requires an attorney.
If you don't understand titling, which is very complex and varies by state, you could make big and expensive mistakes. Titling affects taxes, distributions, payments, and your rights.
But by getting married, you've handled the titling issue upfront because each partner’s rights in the transaction are clear.
- You might have to think about injuries and illnesses.
Should you or your partner become unable to work, who would continue to pay the bills?
If the disabled partner remains in the home, it'll be tough to rent out a room to help pay the mortgage. While the well partner might be willing to pay the medical and mortgage bills, those expenses could become overwhelming.
Injuries and illnesses are extremely expensive. If you aren’t married, you probably won't have much say in your partner’s medical care and rights. This can turn what is already an emotional situation into a financially devastating one.
- If one of you happens to die, everyone suffers more than necessary.
Say you happen to have more financial resources than your partner. You contribute 70 percent of the down payment and will pay 70 percent of the mortgage, so you take title as Tenants in Common in a 70/30 arrangement. If your partner dies, and leaves his 30 percent to his parents, life will get pretty complicated for you.
Not only have you just lost your partner, but you’ve also lost 30 percent of your cash flow, making money very tight.
Did you purchase life insurance? Most people don’t.
Do you have joint bank accounts, and therefore access to your partner’s money or savings? Emotions can run high, and to make matters worse, 30 percent of your home now belongs to the parents of your recently deceased partner.
How well do you know them? Will they pay their share of the expenses? What if they want to sell the real estate? Will they allow you to buy them out? Can you even afford to do so?
You can see how these scenarios get complicated quickly when everything doesn’t go according to plan.
If you and your partner have been considering buying a home before getting married, take a look at this article together, and discuss the option of rearranging things.
If your relationship is solid, why not get married?
And if you’re really not going to get married, but still want to buy a home together, there are options. Just think of all the money you’re saving by not hosting a wedding and go get yourselves a good cohabitation agreement!