In Australia, as with most other countries, the law has different rules for married and unmarried couples who want to purchase a property. There are legislations and courts that are set up to deal with marital assets, but if you’re unmarried, the situation can turn into a very difficult experience. This is why it’s important to set up ground rules before getting a home mortgage loan and officially living in a home together.
Acquire a co-purchase agreement. This may sound overly legalistic, but asking your partner to sign a formal written document will lead to better situations later on. A co-purchase agreement works to protect the both of you by formalising each person’s rights and responsibilities. It also serves as a dispute resolutions mechanism and exit strategy in relation to the purchase.
The co-purchase agreement also covers things like who will pay the utilities, what will happen if the relationship ceases, who will reside in the house, and in what way can the other benefit from selling his or her share.
You may also enlist a legal advisor’s help to ensure that your personal rights are protected. A signed contract is, after all, your ultimate legal protection as an unmarried couple. If you decide to get married in the future, your agreement can always be revised to include a sunset date. Win-win.
Understand joint and several liabilities. When you purchase a property, you are most likely also taking out a home mortgage loan together, right? Take note that most home loan agreement has a clause that will make both of you jointly and severally liable to pay the mortgage in full, plus and other costs or interest. This means that the bank will come after the two of you for the whole loan amount (and even more) if your partner refuses to pay.
To protect yourself against this financial exposure, one good step is to consult with your lawyer about warranties and indemnities that can be included in your co-purchase agreement. You may also take with your bank to see if the liability under the loan as a co-borrower can be reduced. Moreover, see if you can finance the purchase separately as tenants in common rather than joint tenants.
Tenants and common. When purchasing a home, the title can be placed in your names either as joint tenants or tenants in common. Most married couples opt for joint tenancy because it gives them the right to survivorship, wherein if the other dies, the whole property automatically transfers to your name. However, it also makes it very hard to divide or sell a share of the property because you both effectively own the entire property.
A tenant in common arrangement makes it very easy to divide or sell your share of the property. This is handy if the relationship turns sour and you want to move out from the property. You can always change the title to a joint tenancy later if you want.
Purchasing a property as a couple is an exciting financial venture that allows both of you to get even closer together. Just take your time planning it, get the right documents in place and understand your rights and responsibilities. Best of luck!