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Is it wise to buy or help pay for a home with your significant other?

When you are dating, it is natural to want to be around your boyfriend or girlfriend. Regardless of your age or past relationships, you likely desire to share as much time and space as possible with your new love interest.

You may believe that purchasing real estate together is a sound financial decision, especially if you plan to get married in the future. However, is it possible to buy a house together before marriage, while also protecting yourself?

Options for shared property ownership prior to marriage

Nearly 20 million unmarried couples live together. Yet, without the legal measures that typically establish spousal rights, cohabitation could leave something to be desired in the event of a potential breakup. Dividing up furnishings or household goods in the event of a breakup can be annoying or emotional but the financial stakes are generally not high. However, the stakes can be very high, and the economic consequences can be gut wrenching if real estate is involved and you have not formalized your expectations regarding the effect of payments or other contributions to the acquisition or improvement of a house or other real estate.

In some instances, one of you may move into a home already owned by the other party. In that case unless you are listed on the deed or there is a formal written agreement with the property owner, the non-owner moving into the home will not be guaranteed an easy way to recover money they may invest in paying down the mortgage, making improvements to the property or the like. In addition, without a written agreement there will be no way to assure that the non-owner will be reimbursed in any way for unpaid labor that may be put into the home, even for substantial construction, decorating or home improvement efforts.

In some instances, a couple may select a property together but for a variety of circumstances it may be more economical to have only one of them listed on the deed and mortgage. For example, if one of you has bad credit, has suffered a job loss, has high student loan debt or other adverse circumstances, it may be more economical to put the property title and mortgage only in the name of the party with better credit. That leaves the party not named on the title at risk of being unable to share any increase in the value of the property or any proceeds in the event of sale of the property if there is a breakup and a disagreement as to the terms for treatment of the real estate.

In some instances a couple may select a property together and intend that they will both be on the title but make different contributions toward the down payment or other acquisition costs. Similarly, couples who have different incomes may expect that going forward they will each contribute a different proportion toward the payment of mortgage, taxes, insurance and other expenses. In order to assure that different proportional contributions to the property are recognized additional steps may be necessary so that the understandings of the parties are memorialized and formalized.

In some circumstances a cohabitation agreement may be appropriate for the situation. In other circumstances a joint tenancy agreement maybe the right way to define different proportional contributions to the real estate. In yet other cases parties may elect not to do an entire cohabitation agreement but to have a written agreement setting for their expectations and understandings regarding contributions toward and use of real estate they may share.

Since no two relationships or situations are alike, your circumstances will likely dictate what you feel is best for you. Nevertheless, you would be wise to learn about your available options so you can make an informed decision based upon your situation.