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Should I purchase property as a partnership?

QUESTION:

My "Significant Other" of ten years just suggested that we buy a house together. I’m not sure if this is a wedding proposal, but I’d like to understand the different legal forms that home ownership could take for us. We each have money to put toward the down payment and our credit is good, but what am I really getting into?

ANSWER:

When unrelated people buy property together, they need to think carefully about the best form of ownership. If this is a proposal of marriage and you buy the house as husband and wife, then you would own the property as an estate by the entirety. You would each own equal, undivided interests in the property and there would be only one title which lists both your names as husband and wife. If he dies first, you would become the sole owner or, if you die first, he would become the sole owner. Title is cleared out of the deceased spouse by recording the death certificate, an affidavit and estate tax clearance documentation.

There are other options if you are not to be married. These options include tenancy in common, joint tenancy and partnership.

Tenancy in common means that you each have a separate legal title to an undivided interest in the whole property, and you are each allowed to independently sell, mortgage or give away your interest. It is important for two single owners to have a written agreement setting out each individual’s rights to deal with his or her legal interest in the property. The agreement should indicate the percentage of ownership interest each of you has, particularly if you have not contributed equal amounts toward the purchase of the home. If one of you dies, the other does not automatically get the deceased person’s share unless that person specified that in a will.

If the property is held in joint tenancy, each of you has an equal interest in the property regardless of the amount contributed at purchase. If one of you dies, the other’s share passes automatically to the survivor without going through probate. However, care must be taken to be sure the deed specifically recites a right of survivorship plus other requirement details must be met to have a valid joint tenancy with right of survivorship.

A partnership is a different matter. If title is in the name of a partnership, it is the partnership that owns the property, not the individual partners. This calls for an agreement that clarifies that each partner will share in the management of the partnership. The death of a partner does not affect the partnership; that person’s heirs would acquire the interest.

A partnership is sometimes used if one of the parties is just an investor who does not want to live on the property. It is useful if one person goes into bankruptcy or has other legal problems that could cloud the title.

You may want to agree upon a few things if you are to purchase property together. Exactly how much will each of you contribute to the down payment? Who will be the primary contact with the lending institution? Who will pay property taxes and insurance? Who will be entitled to income tax deductions for interest on the mortgage? Who will remain on the property if you can no longer live together? Try to decide as many of these questions as possible in advance of your purchase.

This information is not intended as specific legal advice to anyone and is based upon facts that change from time to time. Individuals should seek legal counsel before acting upon any matter involving the law.

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