Who Gets the House When an Unmarried Couple Splits Up?

What to do about a house you co-own when you split up.

If the two of you didn't sign a joint house ownership agreement that sets forth your intentions in case of dissolution, you have two choices. You can either follow the legal procedures that apply in your state—typically this means the court will order the property to be sold, and the net proceeds (after paying mortgages, liens, and costs of sale) to be divided—or you can reach your own compromise settlement.

In order to sort out who gets what regarding your house, you will need to resolve a few basic issues.

What's Your Share of the House?

Your first possible conflict may be over who owns what percentage of your house or other real property. Especially if one of you believes he or she owns a larger share, or if only one partner is listed on the deed, this can be difficult if you haven't previously signed a house ownership agreement. Remember that in just about every state, having both names on the deed to the house creates a legal presumption that you are 50-50 owners, and anyone claiming a different percentage has to prove the existence of an agreement saying so (often in writing).

Fights frequently arise when your contributions to the property have been unequal. Often a partner who has contributed less financially (say, to the down payment) believes that he or she chipped in something else of equivalent value to the property, such as labor to fix up the house. Take into consideration whether either of you has made any significant extra monetary or labor contributions to the property (for example, one of you just paid $15,000 for a new roof, built a garage, or paid the entire mortgage payment for the last three months). If so, be ready to award that person appropriate additional compensation, most often in the form of a reimbursement rather than a greater share of the equity. When trying to reach an agreement, put aside the most extreme arguments of either person, and acknowledge that there is merit to each side's more rational demands. If conflicts arise over house ownership, it's best to try the following approach to reach a fair settlement regarding these claims:

• Read the discussion on contracts for equal and unequal ownership of a house for ideas on how to adjust ownership fairly when one person contributes more to the down payment and the other makes other contributions (money or labor).

• One possibility is to reduce each partner's total contribution (down payments, mortgage payments, labor, improvements) to a dollar figure. By comparing the two figures, you can come up with what percentage of the house each of you owns. If you can't resolve disputes over the value of your contributions, it often makes sense to get the help of a real estate professional.

• Narrow the financial gap between the two of your positions by compromising on other demands or making other financial concessions.

• Compare the benefit of splitting the difference to the cost of fighting over every last penny. Hopefully, looking at what will happen if you don't settle will encourage you to come to a compromise figure. If you still can't reach an agreement, convene a single mediation session where you limit your discussion to this one point of disagreement. In most instances you will reach a compromise by the end of the day. If you are still at odds, convene a single short arbitration session where you empower the arbitrator to resolve this financial dispute quickly.

Buying Out Your Ex's Interest in the House

Next, you've got to decide whether you will jointly sell the house to a third party or whether one of you will buy out the other's interest. Usually, it is much easier and cheaper for both of you if one of you sells to the other (rather than selling it to a third party) because you avoid all the costs that accompany a market sale. So if either or both of you are interested in holding on to the real estate you own together, it makes sense to attempt to negotiate a mutually agreeable solution.

Assuming you haven't already agreed (pre-breakup) that one person will have first dibs on buying out the other's share in the house, you may use a coin flip or some other simple mechanism to determine who stays and who goes. (These options are included in the house ownership contracts ) Or, if both of you want to keep the house, you can conduct an informal "auction," where the partner who is willing to pay the most gets to keep the place. You can also use mediation or arbitration to resolve the conflict. An arbitrator can be given the power to decide who should stay (after hearing whatever arguments you each make) and perhaps award the selling partner financial compensation for having to move.

If you can agree on who is going to buy the house but can't agree on a sale price, the best way to set the price is to get an appraisal from an experienced real estate appraiser familiar with the local market. If you can't agree on an appraiser, each of you can get your own appraisal and you can average the results. Understand that most appraisals estimate the sale price, but do not take into account the cost of selling the property. If you have your jointly owned real estate appraised and then agree that one of you will buy out the other, you may want to reduce the price by the amount of the real estate commission that would be charged if you sold the place to a third party. In other words, even though you won't have to pay a commission when one of you sells to the other, the buying partner will need to do this eventually, so the buyout evaluation probably should reflect this.

In coming up with a buyout price, make sure, in addition to deducting the amount of the broker's commission, you also figure out and deduct the cost of any deferred maintenance that would have to be done if the place was put on the market. Next, of course, subtract the remaining mortgage amount to arrive at your combined "equity." Assuming this is a positive number, this is the sum that you should use to determine the buyout price (which will be 50% of that number if you own the property in equal shares).

Find out from a local broker or attorney what the procedures are for doing an internal buyout, and make sure you take into account the costs of transfer. Some states impose transfer taxes or recordation fees, and these need to be allocated between the two of you. Often it's best to forestall possible disputes by agreeing to pay transfer costs and taxes 50-50. In addition, obtain the proper deeds and forms and, if necessary, have a professional help you fill them out. You may not need to use a title company or buy title insurance if your transfer is relatively straightforward and you aren't worried about the selling partner's ability to deliver title to his or her share free of any liens or judgments. If you are worried about possible liens, you will have to go through a title company and purchase title insurance—which can add more than $500 to the cost of transferring title. Either way, once the property has been deeded to one of you, this person will need to record the transfer deed with your local property recorder's office.

Finally, figure out your options regarding your mortgage. Quite often, the selling partner will agree to keep his or her name on the loan, at least for a year or two, in which case the buying partner would not need to obtain a new mortgage; of course, in this case the buying partner should give the selling partner written assurance that the mortgage will get paid each month, to help prevent the selling partner from ending up with a tarnished credit rating or facing a bank's demand for payment. If one partner takes his or her name off the loan, in some states and with some banks, the remaining partner can retain the existing loan in his or her own name even after a buyout. (With some loans the selling partner can even be absolved of any further liability.) But in other areas and situations, the buying partner may have to get a new loan. To present a financial statement strong enough to qualify for a new mortgage, the buying partner may need to defer making payments to the selling partner (or make very low payments) for a period of time. If this isn't acceptable to the selling partner, it may be possible for the buying partner to obtain a home equity loan in addition to the first mortgage.

Even if the buyout is amicable and all deed forms have been signed and recorded, be sure to write up a simple agreement stating what you've agreed to. This way you will have a document setting forth your entire agreement, in case a dispute arises later. If you prepare this type of agreement, be sure to have it reviewed by a real estate attorney or broker. You'll want to make sure that any special rules covering internal buyouts are covered in your agreement.

Jointly Selling the House to a Third Party

If neither of you wants the house, you will probably sell it on the market (most likely with a broker's help). Be sure to select a qualified broker who is sensitive to the fact that you are splitting up. The broker can handle the delicate arrangements of fixing up and showing the home, knowing that things may be tense between the two of you. But given that it's in both partners' interest to sell the property for the best possible price, try to work cooperatively.

Once you've sold the place, you still need to divide up the proceeds according to your respective percentages of ownership. Fortunately, a dispute about how much each of you owns need not slow up a sale. You can simply agree in advance to put the disputed portions of the sale proceeds into a joint account requiring both signatures; include a proviso that the funds will not be disbursed until you jointly decide on the division and put your decision in writing. If you do not decide within some defined period of time how to divide the profit, agree that the dispute will be mediated and, if no agreement is reached, arbitrated.

If you can't resolve this dispute by negotiation or mediation, consider submitting it to binding arbitration. You can use a real estate broker (if the dispute is primarily about the value of each party's contribution) or an attorney (if the dispute is primarily legal) as your arbitrator.

Dividing Other Real Estate When a Couple Splits Up

If you own other real estate, such as an investment property or a vacation home, you need to go through the same process as with your primary residence. Decide whether either of you is going to buy out the other's share or whether you are going to sell the place to a third party. Then figure out the property's value and resolve any competing claims for reimbursement for extras. Once the dust settles, you may even be able to continue owning the property jointly as an investment. This is especially likely if you agree to hire a professional management company so you don't have to deal with each other over the details. But if you go this route, be sure to have a written management agreement for the property—you are business partners now, not lovers, so you need to act in a businesslike manner.

More information on Selling a House

For more on the legal and financial issues of selling real estate, see Selling a House in the Real Estate section of this site.

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