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Legal VIEW

Property Agreement Eases Trouble Between 'Live-Ins'

September 01, 1988|JEFFREY S. KLEIN

In years past, if an unmarried couple decided to set up house together, in some quarters it was called "living in sin." But today, no matter what you call it, when two unmarried people decide to buy a house together, they need legal advice.

In most cases, the same advice applies whether the couple is romantically involved or just two friends who want to live together and invest in real estate. They need to decide how to take title to the property--what legal type of ownership to use. The couple also should agree, in advance and in writing, about what to do if certain foreseeable events take place, events such as the birth of children, disability, separation or even death.

Two Options

When it comes to legal ownership, there are two basic options: joint tenancy and tenancy in common. With joint tenancy, the co-owners own the property in equal shares, and each has a "right of survivorship," which means that the surviving owner inherits the other person's interest in the property upon that person's death, no matter what the person's will says about the matter. In fact, the surviving partner will inherit the property even if the will leaves it to someone else.

There are two parts to joint tenancy. The first one is that the property is owned equally. If you don't want to own it equally and thus share the legal right to use the entire property, joint tenancy is not appropriate.

The second aspect of the definition is the right of survivorship--the surviving owner automatically inherits all of the interest in the property held by the deceased. (It's not quite automatic; you will have to fill out some paper work, but the property won't have to go through probate.)

On the other hand, if you plan to own the property in unequal shares, with each owner contributing different amounts toward the purchase, you would probably choose the tenancy-in-common option.

Tenancy in common is another routine method of ownership by more than one person. You can divide up the ownership in any percentage. But when one owner dies, his interest in the property is determined by his will. If there is no will or other estate plan like a trust, state law determines who will inherit the property interest. However, you can still leave your interest to your partner or mate by providing for that in your will. It's just not automatic.

You would also choose tenancy in common if you wanted someone other than your co-owner to inherit your interest in the property.

Selecting the appropriate type of legal ownership is only part of the battle. You still need to consider other possible contingencies--for instance, what happens if you can't stand each other after a few months or a few years of living together.

In their book, "The Living Together Kit," published by Nolo Press, attorneys Toni Ibara and Ralph Warner discuss this possibility and several related questions, such as: Who keeps the house after the split-up? How should the house be valued at that time? Can arrangements be made in advance for one person to buy out the other so one could continue living in the house?

No Simple Answers

There are no simple answers, but each of these possibilities should be discussed in advance, and a contract should be prepared that deals with them.

For instance, you may provide that the house will be sold in the event of a parting of the ways. Or you may decide that a flip of a coin will determine who gets to stay in the house. In that case, an independent appraiser will determine its fair market price, and the remaining owner could buy out the departing owner. The book is a helpful guide through this emotion-laden legal maze.

And without advance planning, you may find yourself in court, in a time-consuming and costly partition lawsuit, asking the judge to order the property sold and the proceeds divided.

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