Any unmarried couple that plans to jointly own a house or other real property should prepare a written contract. When it comes to an investment of this size, it’s just plain nuts to try and wing it with pillow talk. If, later, your relationship becomes rocky, your memories of the details of a spoken agreement may differ. Written contracts, particularly over something so expensive and important as a house, are the only way to protect yourself should you separate from your partner. Even if you are equal owners, having an agreement in place can make a dissolution far easier to manage.
What to Include in a Contract for Equal Ownership of a House by an Unmarried Couple
Here are the basic terms to include in a contract for unmarried couples who want to share equal ownership of a house (see the "Sample Contract for Equal Ownership of a House," in Nolo's book, Living Together: A Legal Guide for Unmarried Couples, for details):
How you are taking title or sharing ownership . You will typically do this as tenants in common or joint tenants (see Clause 2 of the sample contract).
How you are splitting costs (down payment, purchase price, closing costs, taxes, and all other housing costs, including maintenance and repair bills). Clause 3 of the sample agreement assumes you will share costs equally, but you can work out whatever arrangement works best for you. To avoid disputes over money spent on home improvements, we recommend that improvements over a set dollar amount (such as $500—the amount is up to you) require mutual consent, with each partner paying half.
The effect of a breakup on home ownership. Clause 4 of the sample contract recognizes three possibilities: (1) One of you wants to keep the house and the other doesn’t. (2) Both of you want the house. (3) Neither of you wants the house.
Most likely, only one of you will want to stay or both of you will choose to move on. But if both of you want the house, problems are likely to develop. Clause 4 anticipates this possibility by providing several choices for deciding who gets the house should you split up and both partners want it. For example, you may want your contract to automatically give one of you the first right to buy out the other partner’s share in the house at fair market value within 90 days. Or you may opt for a coin toss to decide who gets to buy out the other. (The winner of a coin toss is entitled to buy out the loser’s share at fair market value within 90 days.) You may also come up with your own approach to decide the question of who owns the house if you both want it—for example, you could provide for the decision to be made with the help of a mediator.
If one partner does buy out the other, it is extremely important to change title to the home to reflect the new ownership arrangement. Clause 4 specifies that the buying partner must execute the appropriate documents to do this. In addition, the partner selling a share of the home should ensure that his or her name is taken off the home loan. Otherwise, the selling partner will have no interest in the home, but will still be on the hook for the mortgage. (Usually this will require the buying partner to refinance the home and obtain a new loan in his or her name only.) Clause 4 requires this of the partner buying the home. If the buying partner cannot qualify for a new loan, Clause 4 states that the home must be sold to a third party.
See the article Who Gets the House When an Unmarried Couple Splits Up? on this site for more on this subject.
How to determine the market value of the house should one of you need to buy out the other. See Clause 5 of the sample contract for details.
What happens to the property if one of you dies, or one of you is unable to pay your share of the expenses, such as monthly mortgage payments. See Clauses 6 and 7 of the sample contract for sample language.
The Sample Contract for Equal Ownership of a House also specifies that your agreement is binding on your heirs and estates (Clause 8) and provides for mediation should a dispute arise (Clause 9).
Ownership of a House—One Person Makes All or Most of the Down Payment
What if you and your unmarried partner wish to own a house equally, but only one can come up with all the cash needed for the down payment? One common approach is for you to take title to the house as equal owners (either as joint tenants or tenants in common) with one of you lending the other their one-half of the down payment, to be repaid on an agreed-upon schedule. To do this, you would need to edit the sample contract (specifically Clause 3 which covers the down payment) and prepare a separate promissory note setting out the exact terms of the loan. You will also need to edit Clause 4 regarding who gets the house should you split up. For details on preparing a promissory note, see Nolo’s Personal Finance section.
Another option is for the person who contributes less of the down payment to fix the place up in exchange for equal ownership in the home. You would need to edit the sample contract included here to reflect your agreement.
Finally, you may decide that you do not want to share equally in ownership of the house and prepare your agreement accordingly.
Notarizing and Recording a House Ownership Contract
After your contract is written, the safest legal approach is to record it at your County Recorder’s office along with the deed. To do this in most states, you’ll need to get your signatures notarized. Notarization means that a person authorized as a notary public certifies in writing that you’re the person you claim to be. If you want to have your contract notarized, you and your partner must appear in front of the notary and show proof of your identity. The notary will watch each of you sign the document and then will complete an acknowledgment, including a notarial seal. You can often find a notary at a bank, lawyer’s office, real estate office, or title insurance office, or at private post office businesses. Most charge under $20 to notarize a document.
Some couples, however, shouldn’t or don’t want to record their agreement—either for privacy reasons or because they don’t want to bother recording every amendment they make in the future. And, some counties won’t allow such documents to be recorded, though they may allow you to record a one-page “Memorandum” or “Abstract” of your agreement, summarizing the basic terms.
There’s no clear right or wrong here. Recordation isn’t necessary to make the agreement legally valid. Just make sure you have a safe place to keep the agreement, like a safe deposit box or other secure location.
Impact of Marriage on a Home Ownership Contract
Basically, an agreement between unmarried couples will not be enforceable after marriage unless it was created shortly before the marriage in the anticipation of marriage. Instead, your state’s marital property laws will apply.
When to See a Lawyer
In many circumstances, you will want to an experienced real estate lawyer’s help in preparing a house co-ownership contract. See Nolo’s Lawyer Directory for the names of local attorneys who can help.