[yabbadabba]

I am trying to draw up a cohabitation agreement between myself and my common-law spouse and I need help with putting something together that is fair to both parties, hoping this community can provide some help.

We purchased a home 16 months ago for $410,000 with down payment and legal fees paid by me alone. The final cost was approx $417,000 after legal fees which I paid $90,000 total. We borrowed $20,000 from my mother and $307,500 from the bank. We are on title as "tenants in common" and because of the hasty purchase, divided ownership 60/40 in my favor just to acknowledge the difference in our contributions until we could get a cohab agreement together. I realize that 60% does not adequately protect my down payment, but it's better than 50/50!

The house has increased in value to about $500,000 and my partner should obviously benefit from this increase should we separate but I feel that my share should increase proportionally with the $90,000 I contributed. I'm not sure the most fair way to do the math. There are a few scenarios I've come up with:

1. If $90k represents 22% of the final amount ($417k), I should receive 22% of the current value of the home, i.e.. $500k x 22% = $110k - I would receive $110k, then we divide whatever is left after the bank and my mother are paid off. (When are legal and real estate costs taken off, before my portion or after?)

2. If the home increases in value by x%, (currently 18%) that percentage should be added to my 90%, then the remainder will be divided equally after costs.

Another question I have is how the real estate fees and mortgage pentalties would be factored in. For instance, if we separate but I want to stay in the home, do we factor in what it would cost if we WERE to sell the home and divide the money with these costs considered?

There are more questions but I'll let you get started on this so far and we'll go from there. Thanks in advance for your help!

[Fr_Chuck]

Sorry but I would see you get your 90 K back out and the rest divided 50/50 after all the loans and real estate fees paid.

You get your investment back, and each get equal shares of any profit.

[froggy7]

I agree with Fr_Chuck. Subtract out the 90K, and therest is split 50/50. Which is also what you should do if you split up, and want to buy out the other person and stay in the house. Which would mean, if you split up today, that you would have to give the other person 205K ((500-90)/2). Not sure if you can do that without selling the house to get the money, especially with the mortgage in there. But that's what would seem fair to me.

[yabbadabba]

Hmmmm... so you don't think I should get any interest on my initial investment? Not even the 4.5% it would have made if it were sitting in a savings account? I'm not sure if that seems fair, given that my partner contributed nothing but winds up gaining a substantial sum of money just for signing on the dotted line. Great deal for him!

And what if the market took a downturn? Am I to hold the bag solely on the downpayment even if we lost money on the home?

[Fr_Chuck]

No we don't, we think you are trying to be too "detailed" into going into a relationship.

If you are not willing to put money into a home, and into a relationship, you don't need to be in this relationship.

If you don't want to risk and put something into this, you don't need to be in a relationship and don't need to buy a home.

If I put money into an investment house, I don't get interest off my down payment, I only get the profit of the sell of the home.

Since real estate may even lose money at this point in time, it is a risk.
So put your money in the bank and just rent, I don't think the two of you are ready for a large purchase jointly until a lot more time passes.

[froggy7]

What the Father said. Real estate is always a gamble. Personally, I can't even imagine buying a house with someone I'm not married to, because it is such a large financial investment, and there is always the potential for trouble if the relationship changes. )For example, a co-worker of mine bought a condo with 3 of her siblings. That's great... until one of them wants to move out, and wants their part of the money. Then what?) That's true in marriage, as well, but at least there are established guidelines for what happens then.

[excon]

hoping this community can provide some help.

Hello yab:

We can.

You're asking the wrong question. You want to know how to write a good agreement that's going to work for everybody... Riiiiight.

The problem IS, you're not going to GET an agreement that's going to work for everybody. Why?? Because an agreement that would work for everybody WOULD have been entered into BEFORE you did the deal.

You want to do a "fair" deal AFTER the fact. Those don't happen.

What was fair THEN, might not look so fair NOW. So, instead of asking about a deal that is going to be "fair" to everybody, you should be asking what kind of a deal can I enter into NOW that will LIMIT my losses because I didn't cover my butt when I should have.

Apparently you DID do something that splits things 60/40. I don't know know if it's on paper or not, but I think you're stuck with it. If it's NOT on paper, I think you're stuck with 50/50.

excon

[yabbadabba]

My partner is willing to enter into a fair agreement. The fact that the agreement is happening after the fact is beside the point. He is not looking to profit from this, we both want what would be considered fair. I have spoken to lawyers and it really is up to us how we want to draw up the agreement. I'm just looking for a formula that is fair. Lawyers, my partner, and I all agree that because he did not put any money into this investment, he should not profit equally to me. It's just a question of fairness.

Neither of us believe in marriage and that is not the issue here, just looking for some legal advice.

[froggy7]

Yes, he is looking to profit from it, or else he wouldn't care at all. Having said that, if you really want this to be fair and equitable, you are going to have to cover who is paying the mortgage, doing the upkeep, paying for remodeling, etc. What's going to happen if you lose your job, and your partner makes CEO of his company and starts paying the majority of the household expenses? Will you recalculate who gets what percent? Etc.

Also, if you do not believe in marriage, it's not really appropriate to refer to each other as common-law spouses. Which is an important technicality, because if you are in fact common-law spouses, then you are actually married, with all the legal ramifications if you are in a community property state.

[Fr_Chuck]

Who is going to be making the payments, what percent, each party equals. The one making payments would then also have a higher share of the profit, if you want to do a math formula.

If you want to figurer down payment plus average prime over the number of years till selling adjusted by inflation dollars, anything could be possible, but in the end, there also has to be a buy/sell agreement that is binding, to force one to sell, or they can just refuse to sell.

[yabbadabba]

Canadian law deems us common-law, that's why I refer to him that way. As a matter of fact, we are married... just not to each other... haha!

We split all renovations and upkeep 50/50, equal contributions to the mortgage, utilities, food, etc.

I have a full-time salaried job with benefits and a daughter to look after. He is self-employed and has an almost adult son living with us and paying room and board, he pays support for his teenaged daughter. Wills will obviously have to be drawn up and that is what makes this more urgent. Obviously we have to work out ownership proportions so if anything happens to either of us our estates will be taken care of appropriately.

If he contributes more than me or vice-versa, that will be accounted for as an increased share in the property. I suppose if we are together over a long period, the lines will blur but for now I feel the need to protect my 25% down payment. He is in agreement. It's just up to how to do the math.

Selling arrangements would be taken care of in the cohab agreement also.