For many Americans, purchasing a home will be the largest financial investment of their lives.  And while there is always stress involved in such a substantial purchase, the stress is eased to some degree for married couples by the fact that the experts who assist in the process—the real estate agent, the mortgage broker, the lawyer—have been through the procedure dozens or hundreds of times.  For unmarried couples buying a home together, however, these experts often know very little about which ownership option (i.e., how to title your property) will best meet the needs of the purchasing couple.

Unmarried homebuyers need to inform themselves about property ownership before finalizing their purchase. And before even contemplating home ownership, unmarried couples should seriously consider signing a carefully prepared cohabitation agreement.

While many couples who decide to cohabitate and wish to own a home together believe that their relationship will last forever, the truth is that all relationships will end with either the partners breaking up, or the death of one of the partners.  At the time of the home purchase, it is necessary to look at not only the best ownership options to protect the financial interests of both individuals, but also at whether the choice that is made will continue to be the best option at future points in time.

One Owner or Two?

This first question before buying a home should be, “Who will be listed on the deed as the home owner?”  Many unmarried couples want to own the home “together,” but, this is not always the best choice.  If one of the partners is in debt or has judgments entered against him or her, those judgments could allow creditors to claim a property right in the home and take some of the proceeds when the home is sold.  Keeping the deed in only one partner’s name can shield the property from the creditors of the other partner.

In addition, dual ownership can create an unexpected “gift tax” if one party is making all or most of the down payment on the home, but intends to share the property in another proportion with the partner.  For example, if you make a $100,000 down payment on a house, but agree that you and your partner will both be 50% owners of the house, the down payment may be considered a $50,000 “gift” to your partner, which can have significant tax ramifications.

There is danger, however, in excluding the indebted partner (the one who has not contributed to the down payment), as he or she would have fewer protections in the event of the death of the named owner.  In addition, the excluded partner would not have access to the mortgage interest deduction—a tax deduction that can give the greatest benefit to the individual who is in the higher tax bracket.  In one common scenario, one partner is working (and earning all the money) while the other partner is in school, and expected to have a higher income upon graduation.  If the property is deeded only to the partner who is earning money today, the other partner won’t be able to use that deduction later.

Dual Ownership Arrangements

Assuming that you have decided that you and your unmarried partner want to own the home together, the next choice is to decide whether to utilize a (1) tenancy in common, or a (2) joint tenancy with right of survivorship.  (A third type of tenancy: “tenancy in the entirety”, is generally available only to married couples.)

Tenancy in Common

If a home is titled as a tenancy in common, it can best be understood as each partner owning a specific percentage of the home.  This doesn’t mean that one partner owns the kitchen, and the other owns the living room (both partners have a full right of possession, and neither can exclude the other), but it does mean that in certain important respects, your ownership of the property is distinct from your partner’s.

Titling a property as tenancy in common can be useful when one or both members of the unmarried couple have separate children from a prior relationship.  If you and your partner own a home as tenants in common, and you are 75% owner and your partner is 25% owner, then upon your death, your 75% ownership interest can be inherited by your heirs (for example, your children from a prior relationship).  In addition, while you are both still alive, your partner could sell his or her 25% interest to another party, while you retained your 75% interest.

Joint Tenancy with Right of Survivorship

If the home is purchased as a joint tenancy with right of survivorship, you and your partner will each be considered 100% owners of the home.  Upon the death of either partner, the surviving partner will remain 100% owner and become the sole owner of the home.  This is the tenancy that most closely mimics property rights in marriage, and most convenient when the partners want to ensure that their unmarried partner retains the home after his or her death.  A joint tenancy of this kind has very specific rules that must be met, however.  These rules require that the owners obtain title on the same deed, at the same time, and share equal interest and identical rights of possession in the property.  Therefore, while a tenancy in common can be created at any time simply by adding another name to the deed, it is very difficult to create a joint tenancy with right of survivorship at any time other than at the initial purchase of the home.  Another potential problem is that your heirs would not have any rights in the home if you pre-decease your partner.

Special Considerations for Unmarried Gay Couples

The laws involving gay couples are changing rapidly.  In general, there are currently no specific federal protections that protect unmarried gay couples from discrimination in home purchasing. On February 3, 2012, however, the United States Department of Housing and Urban Development (“HUD”) published a final rule that prohibited discrimination based on sexual orientation in all of HUD’s rental housing and homeowner programs.^[1]  In addition, home buyers in New Jersey are protected by that state’s Law Against Discrimination, which explicitly prohibits discrimination in housing against individuals based on sexual orientation or civil union status.  Pennsylvania does not permit gay marriages or civil unions, and does not have a comparable state law prohibiting discrimination against unmarried gay couples.  However, over thirty municipalities in Pennsylvania have passed ordinances that ban discrimination based on sexual orientation.  Local ordinances should always be considered when determining whether discrimination was unlawful.

Cover All the Bases

No matter how you decide to purchase your home — in one name only, as joint tenants, or as tenants in common — you should always consult a lawyer to create a Cohabitation Agreement.   Also, over time, you may want to re-visit the decisions you initially made, as your situation evolves though job changes, children living in or moving out of the home, or a termination of the relationship. When partners are not married, they cannot get divorced, and therefore do not have a formal time to address all outstanding property issues when a relationship ends.  In many situations, unmarried couples will break up, and one will move out, but without a formal divorce proceeding, the former partner remains on the deed.  Sometimes, if the arrangement is not properly handled, a lien put on the property by a creditor of your former partner can remain even if the home owner thinks it is gone, and your former partner’s creditor will become entitled to the proceeds of the sale of your home even after the relationship is over.^[2]

Your home can be your biggest asset.  Make sure you protect yourself and your partner by using the form of ownership that most closely meets your needs.  Even if you already own a home with your partner, earlier choices should be reconsidered regularly with the advice of an attorney to make sure your asset is not creating unplanned liabilities.

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