How to Divide Equity When You're Not Married
Like your married couple counterparts, you've commingled your finances with your significant other and purchased property. If you've split up or are thinking about your future, it's natural to be concerned about what happens to the equity in your joint property when you part ways. Coming to a reasonable and fair division of property can be challenging, especially with emotions involved. Unfortunately, because you're unmarried, you don't have the same claims to property and legal remedies as married couples. However, you can protect yourselves by coming to an agreement -- preferably before you enter the break-up zone -- and getting it in writing.
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Instructions
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Agree to make a formal agreement. Many couples, especially same-sex couples, use domestic partner agreements or property agreements to cover equity issues as well as a host of other shared expenses. These agreements, like an unmarried couple's pre-nup, is the basis upon which all division of property, equity and other jointly owned accounts are divided. Seek a legal review of your agreement.
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Put your property and equity agreements in writing. You'll have an easier time claiming a joint owner owes you something later n if you have a written agreement. In fact, Retirement Planning Services advises that you document in writing who owns each item you ever buy after moving in together and how it'll be disposed of should you separate. Expressing your agreement in writing can also support your ownership rights in case one of you is not on the mortgage or deed, but you have a private arrangement.
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Don't assume your agreement has to be an even split or even taking out what you contributed. Borrow from married couple's negotiations when thinking about what is the most equitable distribution. It's common for the higher-earning partner to put more money into the house, and it's also common that contribution ratios zig-zag over time, with children entering the picture, periods of unemployment or one of you goes back to school. Moreover, if you've taken out a loan against the equity, for example, to start a business for one partner, even half the equity could leave the other partner substantially less well-off. Likewise, one of you may have invested sweat equity into improving the home. Know there aren't any hard and fast rules, and you're only bound by what you both can agree to. Assign value to the non-monetary contributions and gains each of you has made and received from the property.
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Account for Realtor commissions, fees and taxes in your agreement. You may have, say, $25,000 in equity, but when the house sells, that amount will likely be reduced. Ensure your agreement specifies how you will handle these matters so that there are no unsettled mattered after closing.
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Tips & Warnings
Expect coming to an agreement to be difficult, especially when you broach the subject long before a potential breakup. If you are not on the deed or the discussion is so acrimonious, seek the counsel of an attorney. Prepare for having to take half and cut your losses even if that's an unfair distribution to you.
Bad credit, liens and bankruptcy can add another layer of complication to division of equity. If your partner has these issues, your equity could be wiped out to cover his or her past debts. If you know these to be issues in your partner, expect to need a legal professional's assistance.
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