Buying house with partner - how to protect ourselves?

Daisy_24

|Hi

My partner and I are looking to buy a house together. There are a number of potential sticking points that I would just like clarification on and I wondered if anyone could offer advice please?

Background:

• I am divorced with two grown up children
• He is awaiting his decree absolute with one grown up child and two dependant childrent who live with their mum
• He has no assets
• I have £150k to put down as a deposit
• He earns considerably more than me

My questions:

• Will the fact that he has not yet acquired his decree absolute affect us in any way? They were just awaiting sale of matrimonial home which has happened now. Ex-wife has moved on and bought her own house. Maintenance in place for children and absolute to be applied for imminently
• I have a deposit of £150k to put down on our new house. We were intending to purchase as tenants in common, with a declaration of trust in place to protect my initial investment - agree?
• I want to protect the right of my children to inherit not only what I currently own (£150k) but also a share of what I WILL own. At the same time I want to ensure both my partner and I have a chance to build a new life together without fear of being turfed out of our home if either of us should die. Should we arrange a life insurance on me (£150k) to go to my kids if I die (that takes care of the deposit) and then be 50% each tenants in common, with our respective children being beneficiaries but the other partner having the life interest?
• Or should we just incorporate into the trust that £150k goes to my children BEFORE the rest is split 50/50 to our respective families?

Thank you in anticipation of a reply!

moneyistooshorttomention

The first thought that comes to my mind is as to whether you plan to be living together or married, as I would imagine that would make a difference in the planning.

TBagpuss

Daisy_24 wrote: »

My questions:


Will the fact that he has not yet acquired his decree absolute affect us in any way? They were just awaiting sale of matrimonial home which has happened now. Ex-wife has moved on and bought her own house. Maintenance in place for children and absolute to be applied for imminently

What is relevant is whether there is a financial order in place yet. If not, then his interest in any house you and he buy together will be taken into account as part of the matrimonial assets, in reaching a settlement with his wife. She will not, of course have any claim against your interest in the house.

[*]I have a deposit of £150k to put down on our new house. We were intending to purchase as tenants in common, with a declaration of trust in place to protect my initial investment - agree?

Yes, definitely. The declartion of trust will also protect your interest in the house from his wife

I want to protect the right of my children to inherit not only what I currently own (£150k) but also a share of what I WILL own. At the same time I want to ensure both my partner and I have a chance to build a new life together without fear of being turfed out of our home if either of us should die. Should we arrange a life insurance on me (£150k) to go to my kids if I die (that takes care of the deposit) and then be 50% each tenants in common, with our respective children being beneficiaries but the other partner having the life interest?

The first thing you will have to agree on is how you set up the declaration of trust. You will need to get professional advice about this, and what the knock on effects will be. For instance, specifying that you get £150K and then half the balance will give a different out come to if you say you will own x% (taking onto account your deposit) and he will own y%

You will each own a separate share of the property which you can leave by will to whomever you wish. You should speak to a solicitor about making a will. One option might be to leave your share to your children but to include a provision allowing him to continue to live in the house (subject to paying the mortgage and other outgoings) for a set period - 6 months, 12 months, 2 years / whatever) after your death, to give him a chance to find somewhere new, or to buy out the beneficiaries.

If you take out life insurance with the children as beneficiaries that protects your children if you die, but does not protect you if you and your partner were to split up. It might make better sense to take out life insurance to benefit the children on your death, and leave the house with your partner having a life interest (or right to remain their until he remarries cohabits or goes into care) with your share left to the children. That would give the children £150k on your death, and your interest in the house once your partner is gone, but would leave him in the home in the event of your death.

[*]Or should we just incorporate into the trust that £150k goes to my children BEFORE the rest is split 50/50 to our respective families?

Thank you in anticipation of a reply!

You need to think about 2 separate scanarios. (1) what happens if you die and (2) what happens if you and he split up. The declaration of trust is only relevant if/when the house is sold, or if there was a claim against one of you, for instance, in relation to care fees, divorce etc. It's primary purpose is to protect your respective interests if you separate. It's unlikely to be appropriate to include any mention at all of your children in the declaration. In your will, you should probably be considering what you want to happen if you die before your partner but while still living with him, what would happen if he dies before you, and whether you want to make any provision in your will to state that any legacy to him is effective only if you and he are living together at the time of your death.

Bearing in mind that if you own as tenants in common he may chose to leave his interest in the house to *his* children, you and he may want to put in place life insurance with each the as beneficiaries, so that if he dies before you, you have a lump sum you could use to buy his share of the house from his estate (and to pay off the mortgage) and that if you die first, he can use the money to buy your share of the house from your estate.

Daisy_24

Thank you for such swift responses!

• Not planning on getting married...
• There is no financial order in place yet, although they have agreed on paper that there will be no further claim on him as she had all the equity in the matrimonial home. Financial order essential in your opinion?
• I guess we could buy as tenants in common with a 90/10 split (or something similar) to reduce the immedite risk and change that in time to be 50/50?
• I know the £150k coming out and then 50/50 will have a different outcome to say a 75%/25% split (using a £300k purchase as example). It seems fairer though, as he is the main wage earner, will be paying the mortgage, and we will both benefit from the appreciation equally. I know the £150k in itself will depreciate but my share of the house should compensate (hopefully)
• Will definitely take all of your comments into account - very helpful! Thank you

RAS

Richard Webster (poster here) provided an excellent calculation which allowed for the initial investment and adjusted the percentage share as the other party made higher mortgage payments.

You also need to write in what happens practically if you split up? Would you be able to pay the mortgage on your own? What arrangements would be made to sell. What happens if the value drops?

I really would advise that you wait until his financial consent order is in place and make sure it is a clean break order.

And be very careful about wills; too often people leave arrangements too late and then the family discover that mum/dad had not signed the will and the other party now inherits the lot or does not inherit as intended. They need to be talked through and ready to sign when you exchange contracts.

ClareTeaches

Just something to consider in terms of your deposit, separate from any children/inheritance issues ...The deposit that goes into a house purchase tends to be considered as an investment, which makes sense, so if you only specify that your share is £150k then a split of the remainder, you won't actually be getting any return on the deposit part of your investment.

If you'd put it into some sort of savings account, you would get more then £150k in x number of years. Hypothetically, if you were to buy a property outright on your own and house prices continued to rise, you'd get more than £150k back upon sale.

But, in real terms, if you got £150k back from the sale in, say, 20 years time, you'd actually be getting less money than you put in because of inflation.

One way of combatting that could be that you get an initial percentage back before the split, so say your £150k is a 20% deposit, you would get 20% of any future sale, then the rest is split. Of course, if the value went down, you'd get less money back.

I'm no expert, so I'm sure others can advise you of other ways to solve that issue. I just wanted to highlight it, as it's something people seem to not consider in these discussions and when you're putting in such a large sum, it seems pertinent!

Good luck with the purchase, whatever option(s) you decide on!

ETA - you replied while I was typing, saying you understand your deposit money would depreciate! Might be worth looking at how big a difference it would make, since you don't seem 100% sure your share will balance the deposit depreciation.

getmore4less

In simple terms there are two ways to split how you own the house

so if you want to split 50:50

Equity. (the correct way to do it)
You buy part of it with your £150k, mortgage the rest and he pays the mortgage or you split that(to say make the ownership 50:50)

if the house is less than £300k you put less in and he takes on all the mortgage.

When you split you get 50% of sale then pay off the share of the morgage you have.

Loan.(commonly called the get your deposit back)
You lend your OH 50% of your deposit on an interest free basis and then you split the mortgage 50:50.

You get your deposit back when sold and then split whats left 50:50.

getmore4less

RAS wrote: »

Richard Webster (poster here) provided an excellent calculation which allowed for the initial investment and adjusted the percentage share as the other party made higher mortgage payments.

if done properly there is no need for the % to change over time and it is very hard to do as the debt/asset base are not linked.
(will have a look for the post)

You also need to write in what happens practically if you split up? Would you be able to pay the mortgage on your own? What arrangements would be made to sell. What happens if the value drops?

I really would advise that you wait until his financial consent order is in place and make sure it is a clean break order.

And be very careful about wills; too often people leave arrangements too late and then the family discover that mum/dad had not signed the will and the other party now inherits the lot or does not inherit as intended. They need to be talked through and ready to sign when you exchange contracts.

The hard part is describing the exit senarioes, sepreation,deaths etc. in a deed and getting a will to match up.

getmore4less

Daisy_24 wrote: »

Thank you for such swift responses!

• Not planning on getting married...
• There is no financial order in place yet, although they have agreed on paper that there will be no further claim on him as she had all the equity in the matrimonial home. Financial order essential in your opinion?
• I guess we could buy as tenants in common with a 90/10 split (or something similar) to reduce the immedite risk and change that in time to be 50/50?
• I know the £150k coming out and then 50/50 will have a different outcome to say a 75%/25% split (using a £300k purchase as example). It seems fairer though, as he is the main wage earner, will be paying the mortgage, and we will both benefit from the appreciation equally. I know the £150k in itself will depreciate but my share of the house should compensate (hopefully)
• Will definitely take all of your comments into account - very helpful! Thank you

Taking that example of a £300k house where you have £150k cash and he services £150k of debt you should own 50:50.

Allthough in practice you are jointly liable for the debt there is £150k of equity behind it, as well as the £150k of equity behind the £150k cash injection.

some people can't get their heads round this, but is is like him turning up with the cash by borrowing from somewhere else then the 50:50 is easier to see.


The issue you have the trust deed has to cover all senarioes.

Death and separation are the 2 easy ones.
What about loss of income(can't pay).
What about the won't pay.
...