Not everyone gets married when they decide to buy a home and move in together, and sometimes friends purchase property jointly as well. In either case, if you later decide to go your separate ways, you'll have one asset and two people who are entitled to a share of it, just as if you were divorcing. However, the divorce court can't order a disposition of the equity if you never married, so you'll have to use other options instead.
Who Gets What?
Your first order of business should be to determine exactly how much the equity amounts to. The easiest way to accomplish this is through a professional appraisal. The value over and above all liens is the equity – but establishing this may be the easiest part of the equation. Next you'll have to figure out if you're each entitled to a 50 percent share, or if one of you has invested more in the property than the other and should receive a disproportionate share of the equity. You can go back over your financial records and determine where the down payment came from, who contributed to mortgage payments, taxes, insurance, and repairs and maintenance, and in what percentages. For example, if you typically contributed about 75 percent of these costs, you should receive about 75 percent of the equity.
Sale Vs. Refinance
After you've determined who gets what, you'll have to decide how you're going to cash out the equity. The least messy option is to sell the property. If you do this, each of you can take your agreed percentage of the equity and be done with it. Otherwise, if one of you wants to keep the property, you must decide what to do about the mortgage. If you're parting ways, your relationship may not be healthy enough to sustain the mortgage as-is, assuming it's in joint names. The partner keeping the property will probably have to refinance the loan so it's in his sole name. Refinancing doesn't pay the other party for her equity interest, however, so if you're retaining the home, you'll have to either refinance for more than the existing mortgage to pay your partner her share of the equity, or take cash from another source to compensate her.
The deed to your property becomes important if you can't reach an agreement on how you're going to divide equity. Different states sometimes recognize different types of deeds. If you're not married, you probably hold the deed either as tenants in common or as joint tenants. Tenants in common have an undivided interest in the property. Joint tenancy is similar, but it grants rights of survivorship, meaning that if one of you dies, the other automatically becomes the sole owner. In both cases, if you can't agree how to divide the equity, the court will usually treat the situation as though you and your partner are equal owners, awarding you each 50 percent of the equity. If you made a written agreement otherwise before you purchased the property, the agreement will override the deed in most states.
If you can't go to divorce court to ask a judge to divide your equity, you'll have to petition a civil court for a decision instead. This is typically called an action for partition. Both tenancies in common and joint tenancies usually allow partners this option. If your property is undeveloped land, the court may cut it in two, giving each of you a portion. This usually isn't possible with a dwelling, however. In this case, the court can order the sale of the property, awarding 50 percent of the equity to each of you unless you produce a written agreement in which you provided for a different division.
- Nolo: Who Gets the House When an Unmarried Couple Splits Up?
- Realty Times: Property Rights of Unmarried Couples
- The Florida Bar Journal: Partitioning Real Property in Dissolution of Marriage Actions and Suits Between Unmarried Cotenants
- Mitchell Reed Sussman: Real Estate Law – Types of Foreclosure Proceedings
Beverly Bird has been writing professionally for over 30 years. She specializes in personal finance and w, bankruptcy, and she writes as the tax expert for The Balance.