When and How to Write a Financing Agreement With Your Partner
Every Monday, we address one of your pressing personal finance questions by seeking advice from several financial experts. If you have a general question or money issue, or just want to talk about something PeFi-related, leave it in the comments or email me at [email protected].
This week’s question came via email from a reader who wished to remain anonymous: *
I just bought a house and will be getting married next year or so (we haven’t set a date yet). The groom and I will use this house as our primary residence. I purchased the house with my own loan only, considering only my salary and assets when applying for a mortgage. Payments have not yet been made (well, apart from the advance, which was wholly owned by me), but we have a verbal agreement to pay 50% of the mortgage apiece. I know that every marriage is not successful. Should we then enter into some kind of legal ownership agreement that states exactly what percentage of the total home value each person has BEFORE getting married? We have no additional assets, so a prenuptial agreement is not needed. My fiancé doesn’t like gray areas, and I don’t, and I like it when I clearly state everything about safety in advance.
This is what individual experts usually say about a problem that affects each person differently: if you need personalized advice, you should see a financial planner.
Think about what makes you most comfortable.
The key to answering your question is in the last sentence. Your fiancé may like gray areas and you may not, so having something in writing makes sense. And, most likely, you already know that.
Money is the number one stressor in relationships. A written agreement will not solve all potential future problems, but it will make it easier if you and your fiancé ever break up and give you peace of mind. Something is happening and you need to protect yourself, especially because it looks like you have taken full responsibility.
It’s not romantic, but real. So look out for a cohabitation agreement, which is similar to a prenuptial agreement, and it formalizes any verbal agreements you have entered into.
“If you want your partner became the owner of the property, you can also specify it,” – says Jennifer McDermott , a lawyer for the Protection of Consumer Rights finder.com , the agreements. “It may sound very formal, but it is worth investing in to avoid any future problems.”
It is advisable that you do this before signing the documents, but it is not too late. A real estate attorney or family attorney can draw up a cohabitation agreement for you, and it should indicate how the capital of the house will be divided, what happens if you break up, who is responsible for other bills (utilities, cable) and repairs what happens if one of you is unable to pay your half, what happens if one of you wants to sell the house one day, or if one of you dies, etc. This is especially important to you since you were the one who paid the down payment, and your name will probably appear on the dotted line.
This is also in the best interest of your partner.
Your partner may like gray areas, but you must explain that it is in their best interest to draw up an agreement as well. If your partner does not own the title, they have no stake in their investment, even if they make half of the mortgage payments.
Another thing to keep in mind is that you need to plan for failure or death, no matter how painful it may seem. “If you die without will and you want your property to go to a co-owner, unless it is specified in your will that won’t happen,” Debra Neumann, a certified financial planner, told Bankrate . “Your parents could get it. And your parents may not have been supportive of your relationship. “
“If you want your significant other to be responsible for decisions about your care if you get sick, or to receive any benefits from your retirement plan, insurance policies, or assets in the event of death, you need to put it in writing:” Added by McDermott. “Inform them as beneficiary of any policies and ask an attorney to draw up a financial power of attorney.”
Here are some other things to keep in mind:
- Become financially transparent. “Before you take such a big step as cohabitation, it’s important to give advance notice of any financial skeletons in the closet,” says McDermott. “The issues you should address in this discussion include your attitude towards saving and spending, your credit history, and the details of any debt.”
- Open a joint bank account where you can directly deposit each half of your mortgage.
- Make a budget for household expenses. “Building a new home can be costly and there will be things that mean more to one side than to the other. Avoid controversy by negotiating who buys and “owns” high-value items like a sofa or big-screen TV, ”McDermott says. “Keep track of purchases to avoid disagreement over ownership in the event of a split.”
- Discuss how household responsibilities will be divided and who will be in charge of repairing or hiring someone to do so. What happens, for example, if you need a new roof? Will you pay for this or will it be a joint expense?
- Consider what happens if you are unable to make payments on your mortgage . You said you used your loan to buy a house. This means that if you and / or your fiance miss the payment, you will lose your credit.
- What happens if you have children? This is another discussion you will want to have before drafting the contract.
You must do what is most comfortable for you, minimizing arguments and potential legal battles in the future. Don’t leave any “what if?” hanging.