All There is to Know About Ownership of Property
When buying a house, options exist for how you can own it, both from a legal and finance perspective. If you are buying together it is important to understand the tax implications and legal ramifications of how you own it. Thinking about how you want to own the house is important on multiple levels. The two most common ways to own a property are joint tenants or tenants in common. Joint tenancy means both owners have an equal share of the property. With tenants in common, ownership interest does not have to be equal, but it usually is . A sole owner or corporation can also own property. While anyone can hold legal title, in a married couple situation, if one person contributed more to purchase price, that person receives credit in a divorce or death situation. For instance, if one party contributed 60% of the down payment, and the other 40%, the property would be owned 60% by the person who contributed 60%. The court will recognize that contribution upon division of property. Making sure the agreement is noted with the Land Titles office legally is another protection for the owner.
Contractual Agreements and the Law
In addition to the legal capacity and creditworthiness of each party, consideration must also be given to the existing relationship between the parties. In many instances, parties decide to cohabitate. The legal rights of the parties during this process can be addressed through a Cohabitation Agreement. A Cohabitation Agreement is a contract that sets out the ownership and use provisions for real and personal property that will be acquired during the relationship.
The importance of having a Cohabitation Agreement in place, especially when purchasing a house prior to marriage, is that it can provide clear direction as to the division of assets, if the relationship dissolves. If the Cohabitation Agreement is not in place, the legal ownership rules and the exemptions found in the Family Law Act will apply and often lead to expensive and time consuming litigation.
Impact on Property Made After Marriage
When it comes to the impact of property acquired prior to marriage, this also will not matter either way. A home bought jointly may be take into joint names or simply one party’s name. If this property is truly a joint purchase and you intend to live there together as man and wife, there are several possibilities.
First, if the home is indeed a joint purchase (i.e. with the intent of use and purchase together as an abode), then it is a marital home and subject to equitable distribution. If it is jointly titled and then the parties divorce, it becomes part of the marital pot and is equitably distributed. See our blog entry Jointly Owned Real Property: Is Someone Buying Your Interest? This issue is also intertwined with respect to other real estate A house that is the primary residence of the parties is part of the marital assets and must be carefully scrutinized by someone who knows real property law, valuation, ownership, mortgages and how to geo-reference the data.
Second, if it is only in one party’s name (and it should not be but we do see it from time to time), the issue arose as to whether the non-owner spouse had any claim to the home and/or if the owner actually was holding it in trust for the other spouse. S.S. v. B.S., 428 N.J.Super. 34 (Chancery Div. 2012). It is not as simple as one would hope. The facts used to be a simpler question. However, the appellate court in a case called Reese v. Weis, 430 N.J. Super. 552 (App. Div. 2013) said that if the house is in one party’s name and you are using it as the marital abode, it is part of the marital pot, even if the property was owned pre-marriage. Further, even if it is premarital and a gift from a third party, you might have an equitable claim in it as a result of the marriage.
Things to Watch Out For
The simple fact of not being married does not affect in a major way the rights you may have with respect to the home. The more practical issue comes from the fact that you are not married and therefore there are no spousal rights. Those would include the right to share each other’s income, taxes, medical benefits and other financial benefits that a legally married couple would have.
Of course, it is entirely possible that the relationship may dissolve. Generally speaking relationships are best when they are not expected to last forever. But if the relationship in question goes south (and there is always a chance) , how will you resolve the issue of payment of mortgage and other obligations?
One strategy to consider would be to take out an agreement that specifies financial obligations up front. That means detailing who pays what bills and who is responsible for the mortgage payments. Mortgage companies can move to recover any missed payments from either party to the mortgage regardless of who actually paid the bill if the property is co-owned.
Another potential strategy is to incorporate an exit strategy in your contract. That means one party agrees to buy out the other’s interest in the home if needed and the terms and conditions under which they may do so. If this is not an option (which is not uncommon), then the parties must agree on how to sell the home in the event the relationship is dissolved.
Property and Family Law
Buyer Beware: Real Estate and Family Law Considerations When Purchasing a House Prior to Marriage
The impact of real estate law on property ownership is significant, especially for unmarried couples. Specific issues often arise when unmarried partners decide to purchase a home together, such as the need for a cohabitation agreement. In many jurisdictions, common law rules (as opposed to community property rules) apply to property acquired between unmarried persons. The parties’ status as "tenants in common" will change, of course, upon their marriage; Michigan, for example, considers a married couple to be "tenants by the entirety." However, before the marriage occurs, when unmarried couples buy real estate together there is often a need for detailed documentation concerning the extent of each party’s interest in the property. Some states may impose requirements as to this paperwork, such as a requirement of notarization or a witness signature. When one party tries to exclude the other from the property’s ownership, whether by failing to include them on the deed or otherwise, common law principles come into play.
Situations where individuals are denied their rightful legal interests often arise in the same-sex marriage (or, more correctly, non-marriage) context , where one partner already owns a home at the time the couple begins to cohabitate. Many same-sex couples have relied on a contribution to the mortgage payments as indicating their intended ownership interest. But many courts have found otherwise, holding that the mere payment of a portion of the mortgage payment does not create an interest in the property-especially without a pleading of a contract, or a resulting or constructive trust.
Some states might have laws that affect the ownership interests in such situations. For example, the deadline for filing a claim against the decedent’s estate may be shorter than the deadline for filing a lawsuit. If the ownership interest is classified as an "interest in litigation," the federal probate code requires you to file a complaint to protect your interest in the estate, which can have deadlines as short as thirty days from the date of the decedent’s death. Be sure to meet with one of our estate attorneys about your rights in situations where the title to property is held in such a manner that it may be included in the taxable estate of one of the individuals.
Don’t miss a deadline to file your interest in property owned by or being purchased by an unwed partner. If you do, you may never be able to claim an ownership interest in that property!