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Buying a home with a partner is an exciting milestone, but if you are contributing different amounts to the deposit, it’s crucial to structure ownership fairly.
Using a Declaration of Trust allows you to legally outline ownership shares and protect your financial contributions. Without proper planning, you may risk financial disputes down the line. Here’s what you need to know.
Protecting yourself in case of separation
Breakups or changes in financial circumstances can complicate property ownership. To safeguard both parties:
- Draft a Declaration of Trust upfront.
- Consider a cohabitation agreement outlining financial responsibilities and rights.
- Ensure your wills reflect your wishes regarding property inheritance.
Protecting your investment: Declaration of Trust
If one partner contributes a larger deposit, a Declaration of Trust (also called a Deed of Trust) can protect their share. This legally binding document records:
- How much each partner contributed.
- The agreed ownership percentages.
- How proceeds will be divided in the event of a sale.
- Any agreed adjustments for future financial contributions.
Ownership structures: How will you own the property?
When purchasing a property together, you need to decide on the legal ownership structure:
-
Joint Tenants (Equal Ownership)
- Both partners own the property equally, regardless of who contributed more to the deposit.
- If one partner passes away, the other automatically inherits the property.
- When selling, profits are split 50/50, regardless of initial contributions.
-
Tenants in Common (Unequal Ownership)
- Each partner owns a specific percentage of the property, reflecting their financial contribution.
- If one partner passes away, their share goes to their heirs rather than the other owner.
- Sale proceeds are divided based on ownership shares, ensuring fairness for unequal deposit contributions.
Mortgage responsibilities and ongoing costs
Even if deposit contributions are unequal, both partners may be equally liable for mortgage payments unless specified otherwise. Key financial aspects to discuss include:
- How mortgage repayments will be split.
- Responsibility for property maintenance, taxes, and other costs.
- Whether unequal contributions to mortgage repayments will affect ownership shares.
What happens when selling the property?
How you divide proceeds upon selling depends on your ownership structure:
- Joint Tenants: Proceeds are split equally, even if one partner contributed more.
- Tenants in Common with a Declaration of Trust: Sale proceeds follow the agreed ownership percentages.
- No Agreement in Place: If disputes arise, courts may intervene, which can be costly and time-consuming.
- Ownership Disputes: If one partner disputes the ownership position, this can complicate the sale process. However, the burden of proof is on the disputing party to demonstrate a different ownership arrangement than what is legally documented.
Speak to our cohabitation solicitors today
If you’re buying a home with a partner and contributing different deposits, taking proactive steps can prevent disputes and ensure fairness. Consulting one of our solicitors in Bath, Bristol or Bradford on Avon to draft a Declaration of Trust or legal agreement is a smart move to protect both your investment and your relationship.
Contact us at info@sharpfamilylaw.com.
