First off, I understand that any poster who replies here is not a lawyer, not a lawyer in my jurisdiction, and/or not my lawyer. But I am looking for some pointers on what I may want to bring up with a lawyer (or other legal recourse) or just personal opinion on options available to me.
I’m in the process of buying a house of my very own after more than 10 years of renting. In addition, I’ve asked my girlfriend to move in with me and she said yes, which makes me feel very happy and grown up. However, I’ve got a part of my brain that insists on generating “worst case scenarios”, and I’m wondering what (if any) legal protections the two of us might want to look into.
Some possibly pertinent details: I live in the Denver area, we have no immediate plans of marriage, she’ll be contributing money for the mortgage payment, and we’ll split utilities. The house loan is solely in my name.
Should we draw up some sort of lease for her as a renter on my property? Is there any complication from the fact that I would also be living there? I know it’d never happen, but without some sort of contract is there anything preventing me from waking up one morning and saying “I hate you now, get off my property before I have you arrested for trespassing”? I seem to recall hearing that there are “fill in the blank” boilerplate available for common legal documents. Would one of those apply to my situation, and if so where do those come from?
Would her “rent” payments give her any claim to the increase in equity on the house if we break up? What about any improvements (landscaping, interior decorating, etc) that she contributes to?
As she’s not named on the mortgage, am I correct in assuming that she is also not eligible for any tax deductions from the interest, despite contributing towards the loan payment?
Most of this is probably a moot point, given our personalities. I’d never dump her out on the street with no notice even if we did break up, for example. But this (for me) falls into the same emotional area as a pre-nup: possibly a good idea, can end up protecting both people if things go wrong, but it’s kind of a difficult and sensitive subject to bring up. If the relationship sours a year or so from now, I really don’t want stuff like this to make it worse.
Any insight from the teeming millions would be helpful. Anything else the two of us might want to iron out? I am also going to try carefully broaching the subject with my girlfriend and seeing what she thinks.
Having moved around quite a bit thanks to Uncle Sam, with a handfull of roommates, I can offer you some comments in protecting yourself (and herself) as well. . . But, I am not a lawyer, and someone with a legal mind may come in here to contradict what I’ve learned as “common” law in several states.
& 2. Even though she may, in your mind, be contributing to the equity in the house, she has no legal claim to any of it. She may is a ‘boarded person’ in that house, as I was when I rented a basement apartment from one of my best friends. We had no formal arrangement, but I paid “rent” and he kept that as equity. Now, if you both were actually married, then that institutes a legal claim to shared equity in the house and the property. My friend and I were such good friends–as I assume you both are at this point–that we had a verbal agreement, but if you think you need to (even just to prove it to the IRS), you can handwrite a written agreement, and both of you sign it. It may not be legally perfect, but it’s something. But, there are no complications: you own the property, and you are responsible for the mortgage and taxes, and you are solely the controlling party in legal decisions regarding that parcel of land and house on it.
Correct. She’s not paying interest on the mortgage, you are. In the eyes of your creditor, they could care less where the money is coming from. It’s your name and signature on the line. Thus, it’s only your claim for taxes.
On a positive note though: I’ve been deployed a few times, and left my roommates with a limited Power of Attorney. A limited POA allows whomever you designate to legally act on your behalf on whatever decisions you deem necessary. So, if you want to go on a 5-month vacation to Nebraska, give her POA to pay the utility bills, mortgage, or legally inhabit the house while you’re gone. It’s useful, but you might want to look into it for your locality.
I was once in a similar situation (about 8 years ago) It’s good that you’re thinking about these issues.
(BTW, thanks for saving me the disclaimer - but I should emphasize that there may be Colorado aspects to this that may negate everything I’m about to say.)
As for #1, she probably has some protection against summary eviction by you. You might have to file a forcible detainer (eviction) lawsuit if you ever want her out. A lease is not a bad idea (for some purposes, anyway) , but of course it’s an emotional minefield. There’s unlikely to be any form document that fits your situation well.
#2: To the extent possible, you want to characterize everything she pays as a contribution to common expenses. When I did this, my ex-GF was not in a position to pay all that much. IIRC, we agreed that she would pay the cable bill, take care of the dry cleaning costs, and give me $250/month for what we called the vacation fund. Essentially, this went towards our entertainment and vacation expenses, which I paid. I took care of the mortgage, taxes, insurance, utilities and pretty much everything else. In the absence of something else in writing, you may want to write “vacation fund”, “utility reimbursement” (or whatever you agree the check is for) on the memo line before cashing it. (I didn’t do this, but it can’t hurt.) The idea is that you don’t want anyone to claim later that this was a part mortgage payment, or somehow used to pay a capital house expense. Calling it rent has it’s own potential tax issues, so I’d avoid that, too. Of course, if your common household and entertainment expenses are $800 per month, and she’s writing you a check for $1250 per month, this may not work.
#3 I’m not a tax guy, but I believe this is correct. Also, if your GF is deemed to be paying part of your mortgage interest, you may not be able to deduct all of the monthly interest being paid. Another reason to avoid calling what she pays “a contribution to the mortgage payment.”
Since she’s helping you out with the mortgage payments, and can’t claim any of the interest payments on her taxes, why don’t you make it up to her by taking her out to a nice five-star restaurant dinner with your tax refund?
Although I agree that she’d have an uphill battle, it’s not impossible that she’d be able to claim that you invested in the property together. The fact that it would be solely in your name is not absolutely dispositive. She could claim an oral partnership. If she can show, say, 5 straight years of paying exactly half (or 1/3, or whatever) of the monthly mortgage, which is in part a principal payment, a court might give her something.
I agree that she’d have no claim for a deduction with no ownership interest. But the OP’s deduction might be reduced if the IRS finds out that he wasn’t paying all of it. As I said, I’m not a tax guy, so take this for what it’s worth. I’d say it’s unlikely that the IRS would ever find out, or really care all that much, unless perhaps an ex with a grudge makes an issue of it.
I agree. When A takes B’s money and uses it to pay for something on B’s behalf, the resulting purchase is typically B’s property, even if it remains wholly in A’s forever. We say that A is holding it in a constructive trust for B’s benefit. The difficulty for B would be proving up at some later time where the money came from that A used to purchase, but if B could prove that it happened, in most circumstances a court would consider him the owner.
I further agree that the tax implications are also a big deal, but I know fuck all about them.
–Cliffy
P.S. I’m not your lawyer. I’m not licensed in your jurisdiction, I know essentially nothing about the facts of the case, and I don’t know property law of this type. I’m not competent to represent you in this matter. You should consult an attorney licenesed in your jurisdiction, fully conversant with the facts of the case and expert in this area of the law. You are not my client. I am not your lawyer.
Thanks, all, for your advice (sufficiently disclaimered though it was).
I guess I need to research a bit more on the money / tax side of things.
[ul]
[li]If the money she gives me is “rent” then it (probably) would count as “income” to me as far as the IRS is concerned and would need to be claimed as such on my tax return. [/li][li]If it’s “contribution to the mortgage” it’s not income to me, but could give her a claim on equity which may (or may not) need to be recompensed if she moved out and/or I sold the house. This could also reduce the deduction amount I can claim on my taxes. {small hijack: is “mortgage” the proper term for an initial home loan, or is that specific to additional loans where the house is collateral?} [/li][li]If her money is “contribution to common expenses” than neither (possibly) applies.[/li][/ul] Would details about this breakdown be something I could speak with a accountant about, or would it be more applicable to talk with a tax attorney?
As far as her remaining in the house should we break up, it sounds like she has protection from immediate eviction, but I have options to keep her from “squatting” as well.
Cliffy: I’m a bit confused about the “constructive trust” you mentioned. In my case, the property is in A’s name, money from B is added to money from A to pay for something used by both A and B. So in my mind “worst” case would be that the property would be deemed to be owned by both A and B, despite the title being solely in A’s name. Or are you referring to items other than the house itself? I’m better off financially than GF, so it’s not that she will be contributing all (or even most) of the money for the loan payment.
Tripler: a) your suggestion of a 5-star dinner will certainly be remembered, and b) why in God’s name would I want to go to Nebraska at all, let alone for five months?
It seems to me that if you took B’s $$ to pay your mortgage, there’s some chance that in some circumstances she might be considered to be a consctructive co-owner. Maybe this might depend on whether your state considers mortgaged property to be owned by the mortgager or the mortgagee. Or it might not – I’m talking out of my ass. Get a lawyer.
