Buying a home is a significant commitment for both married and unmarried couples. Homeownership with a significant other brings newfound happiness and pride into the relationship -- the two of you are planting roots together and building shared memories.
It’s definitely a big step, especially for unmarried couples. Homeownership poses some serious legal and financial decisions that need to be addressed long before anyone signs any legally binding paperwork.
Below we’ll take a look at a common form of property ownership in many states and how it impacts married and unmarried couples.
What Are Tenants In Common?
Tenants in common (TIC) is one of the most customary methods for two or more people to hold title to real property assets such as a single-family home, condominium, or townhouse, as well as TIC investment properties. Under this arrangement, each co-tenant is named on the property’s deed, but they can hold unequal ownership shares -- 75 percent and 25 percent, for instance.
The tenant in common structure affords co-owners certain rights in regards to property ownership. TIC owners can sell or convey their interest in a property to someone else without gaining consent from the other co-owner. In a TIC, there also is no right of survivorship -- ownership interests are not passed on to the other surviving co-tenant if one owner dies. TIC co-owners are free to bequeath their fractional interests to an heir of their choosing.
These rights can pose serious legal and financial challenges to married and unmarried couples in the event of a divorce or dissolution of a relationship where substantial assets such as a home were purchased.
Tenant In Common and Married Couples
Property laws typically recognize a 50-50 ownership percentage in a tenants in common arrangement if not recorded otherwise, so it’s important for married (as well as unmarried) couples buying a house together to specify their ownership interests if the financial burden is heavily skewed toward one side. You can file a written agreement denoting ownership interests at your county recorder’s office or have ownership percentages listed on the property’s deed depending on your state’s laws and real property recording methods.
Documenting unequal ownership shares may bring about some tense conversations, but those discussions likely will pale in comparison to a roundtable workout with divorce lawyers or mediators to determine an equitable division of marital assets if you ever split with your spouse.
Tenant In Common and Unmarried Couples
Unmarried couples also can hold title to real estate as tenants in common with equal or unequal ownership shares depending on who put up the bulk of the money needed to purchase the asset. It’s important for couples to settle that aspect of ownership up front to avoid potential complications in regards to ownership interests later on.
Unmarried couples who purchase real property should carefully consider all aspects of titling options. If real estate is titled as a TIC and one co-tenant passes, the other co-tenant won’t automatically receive all shares of the property. Instead, ownership passes on to whoever is named in the deceased’s will, or to their closest kin in lieu of a legally binding estate plan. Unless specifically stated in a will, the living partner won’t have full ownership of their own residence. Even if an estate plan is in place when you purchase the residence, your partner could change his or her will if the relationship ends.
The Bottom Line
It’s not uncommon for married and unmarried couples who have lived together for some time to jointly purchase a home or similar asset. Couples who acquire substantial financial assets should put a plan in place that accounts for how the property will be divided if they ever split up, especially if one partner contributed a much larger share of funds toward the property.
Without a plan in place, laws typically will settle on equitable distribution of assets between the owners listed on the property’s deed. Both married and unmarried couples would be well served to consult with legal professionals prior to entering into a tenant in common ownership arrangement to determine how they’ll jointly own the property. It may not seem important during the good times, but it can make a tremendous difference in the proper division of assets if the relationship fails.
This material is for general information and educational purposes only. Information is based on data gathered from what we believe are reliable sources. It is not guaranteed as to accuracy, does not purport to be complete and is not intended to be used as a primary basis for investment decisions. It should also not be construed as advice meeting the particular investment needs of any investor. Realized does not provide tax or legal advice. This material is not a substitute for seeking the advice of a qualified professional for your individual situation.
