Buying a Home with Your Partner: The Legal Stuff
Buying your first home together is an exciting step in any relationship. If you're thinking about making the leap, there are a few legal considerations that it's wise to turn your mind to before signing on the dotted line.
Tenants in Common or Joint Tenants?
If you and your partner are buying together, there are two different ways you can structure ownership of that property; as tenants in common or joint tenants.
With a tenancy in common, each owner holds a separate share of the property. These shares can be equal or unequal; so, if you and your partner are contributing significantly different amounts to the purchase price and want this to be reflected in the ownership structure, this is something to consider, subject to entering into a Contracting Out Agreement.
Comparatively, in a joint tenancy, both owners would hold equal and undivided interests in the entire property. The other key difference in a joint tenancy is the right of survivorship. This means that if one party dies, their half-interest in the property would automatically pass to the surviving partner, regardless of whether they have a will and what is provided for in it.
If you and your partner are recorded as tenants in common, however, then each partner's share of the property is separate and would form part of their estate if they were to pass away. It would then be distributed according to the terms of their will, or the laws of intestacy if they don't have a will. This allows parties to have more flexibility and control over their estate planning. This can be particularly helpful in the case of blended families, where parties may wish for their respective estates to pass to their own children from previous relationships.
Contracting Out
Buying a home and living in it together means this property will automatically attain the status of the Family Home under the Property (Relationships) Act 1976. The Family Home is almost always classified as relationship property and is usually divided equally between partners when a relationship ends (whether by separation or death of one of the parties), regardless of what contributions each party made to the purchase price, who is recorded on the title, and what ownership structure is recorded on the title.
If you don't want the above presumption of equal sharing to apply to your home, you may want to consider a Contracting Out Agreement, or a "prenuptial agreement", to record a different arrangement between you and your partner, with the benefit of independent legal advice. A Contracting Out Agreement allows partners to record how all of their relationship property, including the Family Home, will be divided if the relationship ends or one partner passes away. As an example, if one party contributed 80% of the purchase price and the other contributed 20%, the parties may wish to each receive their initial contributions back when the relationship ends before sharing equally in any remaining equity.
For a Contracting Out Agreement to be valid and enforceable, it must be in writing, signed by both parties, and each party must receive independent legal advice. Typically, this would involve a disclosure process, so each party is fully informed before entering into the Agreement.
Updating Your Will
Having a valid and up-to-date will is always important, but particularly so when you own a large asset such as a home. This ensures your property is distributed according to your wishes after your death and provides a clear pathway for your executors to facilitate this. Without a will in place, your estate would be distributed according to the rules of intestacy, which may result in your home passing to unintended beneficiaries. It can also result in unnecessary stress, expense, and dispute for your loved ones.
If you are buying a home with your partner, you should discuss with your lawyer updating your will and ensuring this aligns with your chosen ownership structure, and any Contracting Out Agreement or other relationship property implications.
Every couple's circumstances are different, and the right ownership structure or relationship property arrangement for one couple may not be the right fit for another. Seeking legal advice early can help you understand your options and avoid costly issues later. At Checketts McKay Law, we regularly assist clients with property purchases, Contracting Out Agreements, wills, trusts, and estate planning, helping Central Otago families put the right protections in place from the outset.
And the Big Stuff
Having addressed the legal considerations, it's now time to turn your mind to the most difficult negotiation involved in this process; agreeing with your partner on home décor. Your lawyer can help you work through the legal implications of shared home ownership, but when it comes to the deer head he wants to hang in the living room, and whether 47 throw cushions on one bed really is excessive, you're on your own.
By Alyssa le Lievre, Senior Solicitor