Property Ownership Issues That Concern Unmarried Couples

In general
As an unmarried couple, there are no uniform guidelines for dividing your shared property if your relationship ends. You can't turn to a divorce court, as can a married couple. In the event of death, your property does not automatically pass to your partner. By understanding the different forms of property ownership that are available to you and the issues that unmarried partners face, you can protect your rights and ensure that your property is disposed of as you wish.

Categories of property to consider
There are three main categories of property to consider: (1) property that comes with documented evidence of ownership, such as real estate, vehicles, stocks and bonds, and bank accounts, (2) property in the form of income, and (3) untitled personal possessions.

Ownership concerns
There are several different ways you can hold property that comes with documented evidence of ownership: (1) as a sole owner, (2) as a joint tenant with rights of survivorship, (3) as a tenant in common, or (4) in trust with your partner named as beneficiary. (Two additional forms of ownership—tenancy by the entirety and community property—are available only to married couples.) Your income is considered separately owned as you enter a relationship. However, a spoken or implied agreement to share it with your partner may support his or her claim against it (as in a palimony suit) if your relationship ends. Your untitled property is best held separately.

Put property agreements in writing
If you do acquire items together, it's advisable to document in writing who owns each item and how you'll dispose of it if you separate. A written agreement, such as a domestic partner agreement, can support your ownership rights and clarify your intentions for the distribution of your property if you die or your relationship ends.

Owning property with documented evidence of ownership
Types of titled property
Real estate, vehicles, bank accounts, and securities, such as stocks and bonds, are examples of property that come with documented evidence of ownership. For instance, real estate has a deed, vehicles have titles, securities have certificates, and a bank account requires your name on an account agreement or signature card.

Legal forms of ownership
There are four legal forms of ownership for property that has documented evidence of ownership: (1) sole ownership, (2) joint tenancy with rights of survivorship (JTWROS), (3) tenancy in common, and (4) trust ownership. (Two additional forms of ownership—tenancy by the entirety and community property—are available only to married couples.) Property laws, which vary from state to state, govern the type of property you can hold under each form of ownership.

Sole ownership
As an unmarried sole owner, you have the exclusive right to a piece of property and can sell or dispose of it when and as you wish. At your death, ownership is transferred according to the terms of your will. If you die without a will, ownership passes to your next of kin according to the intestacy laws of the state in which you live.

Caution:ÝHowever, if you are still married to someone else, even though living with another, your spouse still has rights to real estate you solely own at death.

Joint tenancy with right of survivorship (JTWROS)
In general
Joint tenants with right of survivorship share equal ownership of property. Most states recognize the right of survivorship, but many do so only if it is explicitly stated in the title or deed. Both signatures are required to sell the property as a whole. If your relationship ends, or if one of you becomes incapacitated without having delegated power of attorney to the other, you could face difficulty selling the property. If you deed half the property to your partner and your relationship ends, you may have no recourse for transferring the deed back to your name without the consent of your partner.

Tip:ÝHowever, you can always sell your interest without your partner's consent or file for partition to make it possible to identify your piece for sale or to force the sale of the entire parcel.

Creditors' rights to property held under JTWROS
It may be difficult for a creditor to collect a claim against jointly held property, since you don't actually own a separate share; rather, you and your partner own equal rights to the entire property. Laws regarding the right of creditors to make claims against jointly held property vary from state to state.

Put your joint ownership agreement in writing
If you purchase property as joint tenants with right of survivorship you should document in writing how much you're each contributing. In the eyes of the law, you are each equal owners of the property. If you die, your partner becomes the sole owner. If your relationship ends, you are each viewed as equal owners, and your partner could possibly get half the value. Unless you have a side agreement explicitly stating your individual contributions, there is no way for a court to know that you, for instance, actually paid for 75 percent of the property while your partner only paid for 25 percent. At death, the portion of the property included in your estate is based on your individual contribution.

Strengths of JTWROS
Easy to set up
A JTWROS is easy to set up. You simply list both names on the title or deed and explicitly state that ownership is by JTWROS. (Also, be sure to list both names on your homeowners insurance policy to ensure that you are both covered.)

Avoids probate
An important feature of a JTWROS is that it avoids probate. At your death, the property automatically passes to your joint owner, rather than your next of kin. By transferring ownership in this way it is hard to contest, as it could be if you devised the property in a will. In fact, the right of survivorship listed on a deed is strong enough that most written contracts, including domestic partner agreements or wills, cannot contradict this type of ownership.

Tradeoffs of JTWROS
Does not allow for predisposition of the property
Once ownership passes to your partner at your death, he or she alone controls any further disposition. Any contrary wishes you expressed prior to your death will hold no legal weight.

May be subject to estate tax
Although such jointly owned property avoids probate, it does not avoid estate tax. The entire value of property you as an unmarried couple hold jointly is included in the gross taxable estate of the first to die, unless records can prove the surviving partner contributed all or a portion of the cost of the property, thereby excluding that piece. In other words, your estate must prove that your partner's share of the property wasn't a gift. You should keep accurate records of your payments on jointly held property to verify your share of the ownership.

May be subject to gift tax
Any property you transfer to your partner for less than its fair value may be considered a gift subject to gift tax on any amount over the $12,000 annual gift tax exclusion amount and in excess of the $1 million gift tax applicable exclusion amount. Although you may think of a gift as something you give, expecting nothing in return, the IRS considers gifts to include uneven exchanges of property.

Example(s): In 2007, Tim and Jody purchase a $300,000 house together as equal owners. Tim contributes $200,000, while Jody pays $100,000. The IRS will consider that Tim gave Jody a $50,000 gift (the difference between half the purchase price of $150,000 and the $100,000 Jody actually paid). The IRS may tax Tim on $38,000 (the $50,000 gift less the $12,000 annual gift tax exclusion) unless Tim has a portion of his gift tax applicable exclusion amount available to offset the gift.

Even if you simply add your partner's name to a deed, if there is not an exchange of fair value, the IRS may consider this a gift subject to tax.

Example(s):ÝIn 2007, Tim owns a house worth $300,000 and adds his unmarried partner Jody's name to the deed with no fair exchange of value. The IRS considers this a $150,000 gift. Tim is taxed on $138,000 ($150,000 less the $12,000 exclusion) unless Tim has a portion of his gift tax applicable exclusion amount available to offset the gift.

Keep accurate records to prove how much of the property you own. For more information, see below.

Joint bank accounts can be frozen at death
The bank, estate executor, or family of your partner can freeze a joint bank account if there is any question as to who actually owned the account. Even if your name is listed on the account, it's possible that it's only there for the convenience of cosigning checks and you haven't actually contributed to the funds. A freeze can be put on the funds until this is sorted out. Even if you actually contributed half the money, you can be left without access to your money until the matter is settled.

Joint ownership of a car exposes you to liability
It's best to avoid owning a car together. Joint ownership exposes you both to liability if one of you is involved in an accident. If a judgment is awarded against one of you, it could jeopardize your other shared assets, such as your house or savings account. Shared ownership of a vehicle by two unrelated people may also make it harder to obtain auto insurance or may require you to purchase it at higher rates.

Tip: Even if only one of you owns the car, if a judgment is entered your shared assets may be jeopardized.

Tenancy in common
In general
A tenancy in common allows you to own unequal shares in property. For instance, you could own 60 percent, and your partner could own 40 percent. These percentages are actually stated on the deed. In most states, the sale of property to two or more co-owners automatically creates a tenancy in common unless the title or deed specifies otherwise. With this form of ownership, you can each give or sell your share to anyone at any time, or dispose of it in a will even without the consent of the other.

Put your tenancy in common agreement in writing
If you purchase property as tenants in common, document your agreement in writing. Identify how you'll pay for the property, what happens if you split up, and who gets the share of a partner who dies.

Tip:ÝIt's crucial that, once written, you follow the agreement, otherwise it's difficult to enforce. You should also support it with other documents, such as a will.

Tradeoffs of a tenancy in common
Subject to probate
A tenancy in common is subject to probate, unlike a JTWROS. Your share does not automatically pass to your cotenant at your death. It is transferred according to your will or, if you die without a will, to your next of kin according to the intestacy laws of your state.

May be subject to gift tax
If you add your partner's name to a title or deed without a fair exchange of value, this may be considered a gift subject to gift tax on any amount over the annual gift tax exclusion.

Creditors' rights to property held under a tenancy in common
Property held under a tenancy in common may be an easier target for a creditor than property held under JTWROS. Because your share of the ownership is listed on the title or deed, a creditor can more easily collect against it compared to a joint tenancy.

Tax considerations of a tenancy in common
If you own a house as tenants in common, the bank will generally issue only one Form 1098, Mortgage Interest Statement, to the person listed first on the deed. The IRS checks the mortgage interest deduction on the tax return against it. If you receive the Form 1098, you should enter the entire interest amount on your tax return and then reduce it by your partner's share. Your partner should then enter his or her share on Schedule A, "Home mortgage interest not reported on Form 1098," and append a statement to his or her tax return with the name, address, and Social Security number of the person named on Form 1098.

Owning income
Although you enter a relationship owning all your job-related income, many states allow this to be changed by a spoken contract with some confirming actions, or one implied by your living arrangements, as in the groundbreaking Lee Marvin palimony suit. Without a written understanding to the contrary, if your relationship ends, your partner can claim that you promised, or implied a promise, to share your income. Even if this doesn't hold up in court, you can spend a great deal of time and money contesting it.

Owning untitled property
It's best to own untitled property separately, keeping records of your receipts to document ownership in case you break up. If you do acquire possessions together, you may want to consider stating in writing who owns them. A written agreement provides a stronger basis for claiming ownership of your property if your relationship ends.

Put your property agreements in writing
In general
As unmarried partners, you don't have the benefit of laws that entitle you to a share of property if your relationship ends or that entitle your partner to a share of your property at your death. A written agreement supports your ownership rights, clarifies your intentions for the distribution of your property, and can prevent costly and emotionally draining legal battles. A written agreement can be valuable even if you hold property as JTWROS. A document declaring your intention to share joint ownership with your partner and stating your desire to leave sole ownership of the property to him or her will support your partner's claim to the property.

Areas to cover
Some areas that a written agreement may cover include the following:

• What rights, if any, your partner has to your income
• How ownership will be listed on the title or deed
• What shares you each own—if the property is not equally split, any arrangement you have by which the minority owner can equalize his or her share
• What the terms are if one of you purchased your ownership directly from the other or received it as a gift
• How you'll divide the property if your relationship ends—whether one of you has the first right to remain in a house you co-own and buy the other out or whether you'll sell the house and divide the proceeds
• If one of you has a buyout right, how you'll determine the value and over what period of time the buyout will take place
• What your intentions are for the disposition of your property after your death

For more information on written property agreements, refer to Domestic Partner Agreements.

Keep thorough and accurate records
Keep thorough and accurate records of all your property transactions, including those for separately owned property. This can help you avoid problems with the IRS over gift and estate taxes and can ease the fair distribution of your property if you and your partner separate.

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