Like an increasing number of couples in the UK, you and your partner might be considering buying your first home without getting married.
This could be because you want to get a foot onto the property ladder as quickly as possible, you don’t want a wedding eating into your house deposit, or you simply don’t believe in tying the knot.
Whatever the reason, buying a property as an unmarried couple can have lots of legal and financial consequences. Regardless of how long you and your partner live together, you won’t have the same legal rights as a married couple or a couple in a civil partnership.
Without the correct documentation in place, you could find yourself severely out of pocket if your relationship breaks down. If you’re unmarried and buying a house, here are five questions you must ask yourself.
1. How will we own our home?
When you buy a house as a couple, there are two ways in which you can legally own it: as joint tenants or as tenants in common.
If you’re joint tenants, your house will belong to each of you jointly. You won’t own a specific share of your home, and you won’t be able to pass on a share of your home in your will. When you die, your interest in the property will automatically pass to the other owner.
In contrast, tenants in common each own a specific share of the property’s value. You can give away your share, sell it, or pass it to a named beneficiary in your will when you die.
2. How much money are we investing in the property?
The difference between joint tenancy and tenancy in common matters most when you’re deciding how much money you’ll each put into your property.
The law assumes that joint tenants own their house equally, regardless of how much money each person contributes. Unlike married couples, a judge won’t look at what is ‘fair’ when deciding how to distribute assets when you split up.
Instead, they’ll usually order that the house is sold and the proceeds are divided equally. So, if you’re joint tenants, you could end up with 50% of the sale proceeds even if you paid the whole deposit and made most of the mortgage repayments.
If you’re tenants in common, you can draw up a legally binding document setting out the percentage of the property you own. This document could prove vital in avoiding financial uncertainty if your relationship breaks down.
3. Do we want a cohabitation agreement?
Entering into a cohabitation agreement is one way of ensuring you’re protected if your relationship comes to an end. As unromantic as it sounds, it can help to reduce the chances of additional acrimony at a stressful and upsetting time.
A cohabitation agreement sets out:
- Who owns what and in what proportion
- How your property, belongings, savings and other assets will be split if your relationship ends
- How your children will be supported
- What will happen to bank accounts, debts and other joint purchases.
You can also set out how you’ll manage your daily finances, including how much money each person will contribute to the mortgage and other bills.
Bear in mind that a cohabitation agreement is only legally binding if both parties have received independent legal advice.
4. Should we get a joint bank account?
A joint bank account can make it simpler to share money and pay household bills, including your mortgage. However, there are some potential drawbacks.
First, if your partner has a poor credit score, it could affect your own credit score and reduce your chances of being approved for financing in the future.
Second, if you have a bad break-up, there’s a risk your partner could take all the money out of the account, with little chance of you recovering it. If the account becomes overdrawn, each account holder is responsible for paying back the cash, meaning you could end up paying your ex’s debts.
5. Have I made a will?
Making a will is extremely important because it helps to ensure you’re financially protected if the other person dies.
As mentioned before, owning a home as tenants in common can make the division of assets fairer if you split up. However, it also means your share of the property won’t automatically go to your partner if you die.
By making a will, you can ensure your partner inherits your share. If you prefer, you could structure your will so that part of your share goes to your partner and the rest to any children you have from a previous relationship.
Bear in mind that if unmarried partners have children together, your children could inherit everything if one of you dies. In a worst-case scenario, this could result in you having to make a legal claim against your children for financial provision.
Get in touch
If you’re an unmarried couple and would like advice on buying a home and protecting your finances, please get in touch. Email firstname.lastname@example.org or call 0131 339 2281.
The Financial Conduct Authority does not regulate estate planning, tax planning or will writing.