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For Unmarried Couples Who Own a Home Together – A Co-Habitation Agreement is a Must!

Charity A. McCarthy

Douglas C. Scriver

April 24, 2017

The number of couples deciding to remain unmarried is on the rise, and many of those couples make “life’s biggest investment” together – purchasing a home.   Unmarried couples, however, are affected by property, probate, tax, and other laws differently than their married counterparts.  Thus, it is important for those individuals to own their homes and agree with their significant others in a manner that accurately reflects both partners’ desires and expectations.  An unmarried couple must answer the questions, among others, as to what happens to their home if (A) one (or both) of the partners dies, or (B) their relationship ends in a separation.

Death

Unlike married couples in Wisconsin, those who are legally single cannot own their homes as “survivorship marital property.”  Unmarried individuals must instead choose to own their shared property as either “joint tenants” or “tenants in common.”

A joint tenancy is similar to survivorship marital property.  At the time of the first death between joint tenants, the deceased individual’s interest will be automatically transferred to the surviving joint tenant.

A tenancy in common, on the other hand, has no right of survivorship, and the interest of the first to die in the home will be passed as directed in his or her Will.  Alternatively, if the first to die has no Will, his or her interest in the home will pass to his or her heirs (e.g., surviving children if any, if none, then surviving parents, if none, then siblings, etc.).  Such heirs will then own the home with the surviving individual.

Whether to own a home as joint tenants or tenants in common is unique to every couple.  For example, if an unmarried couple’s house is titled as a joint tenancy, the heirs of the first to die have no rights with respect to the property.  Consequently, if the couple’s decision to remain unmarried is motivated, at least in part, by a desire to keep their assets separate and allow their assets (or the value of their assets) to pass to their children or other family members at death, then simply becoming joint tenants might be an imprudent course of action.

Even if a couple owns a home as joint tenants, so that the surviving party receives the deceased’s interest, this would not address how the deceased party’s interest in the personal property within the home would be dealt with at death (e.g., furnishings, appliances, etc.).  If the deceased party did not have a Will leaving such personal property to the surviving party, the surviving party and the deceased party’s heirs would be left to sort out which personal property items now belong to the heirs and which personal property items remain with the surviving party.

To avoid the above issues, a couple should consider a co-habitation agreement which can outline how the couple wishes to deal with the house and personal property in the event of one of their deaths.

The following are a few items that a couple should consider addressing in a co-habitation agreement in the event of death:

  • Would the surviving party receive the deceased party’s interest in the house at death, along with all furnishings, appliances and other personal property?  Would the surviving party only be entitled to receive the deceased party’s interest in the home if they have been in a relationship for a certain number of years?
  • Are there certain personal property items in the home that the deceased party would want to go to his or her heirs (e.g., family heirlooms, antiques, pictures, etc.)?
  • Does the deceased party want any value from the home to go to his or her heirs? For example, the value of his or her down payment towards the purchase of the home and his or her share of any other equity in the home? Would the house need to be sold or refinanced by the surviving party to provide such value to the deceased party’s heirs?  If so, who would decide the details relating to how and when to list the house for sale and the sales price?

For certain items that are agreed upon in the co-habitation agreement relating to death, care should be taken to coordinate the co-habitation agreement and any estate planning documents so they are consistent.

Separation

An unmarried couple who owns a home together will continue to own the home together if and after they break up.  This can present a host of messy issues.  A carefully crafted co-habitation agreement entered into by the couple while in a relationship can avoid many of these issues by addressing in advance how the home would be dealt with in the event of a break up.

The following are a few items that a couple should consider addressing in a co-habitation agreement in the event of a break up:

  • Will the parties be required to list the house for sale after a break up or will one party have the right to buy the other party out?
  • If the house is sold, how will the parties agree on a sales price? When will the house be listed? Is the house to be listed with a broker? Which broker?
  • Before the house is sold, who is responsible for maintenance, taxes, insurance, and other expenses? May one of the parties continue to live in the house?  If so, is he or she to pay rent to the other?
  • If a party has the right to buy-out the other party, what is the deadline for him or her to do so? How is the buy-out price to be determined and how will it be financed?
  • If one party provided more funds towards a down payment or improvements or paid more of the monthly mortgage payments, how will this be dealt with as part of any sale or buy-out by the other party? For example, will the party who provided the down payment receive the down payment first from any sale proceeds, with the remainder then divided equally between the parties?
  • How are the appliances and furnishings in the home to be handled in the event of a sale or buy-out by the other party, particularly if they were purchased together?

Conclusion

As illustrated above, unmarried couples face a myriad of issues when purchasing a home together, particularly in the event of death or separation.  And like almost every transaction, how these issues are handled may also have tax implications. Accordingly, we recommend that couples seriously consider entering into a co-habitation agreement to address these issues and we recommend that they obtain the advice of experienced legal counsel when entering into such an agreement.


If you have any questions about how the information in this article may affect you, please contact Charity McCarthy at cmccarthy@stroudlaw.com or Doug Scriver at dscriver@stroudlaw.com or (608) 257-2281 or your Stroud attorney.

 DISCLAIMER: The information in this article is provided for general informational purposes only, is not necessarily updated to account for changes in the law, and should not be considered tax or legal advice.  This article is not intended to create, nor does the receipt of it constitute, an attorney-client relationship.  You should consult with your own legal and/or financial advisors for legal and tax advice tailored to your specific circumstances.