Trust deed apportionment, unequal deposit, equal ongoing payments

carl0s

Hi. I am struggling with how to apportion this fairly. The solicitor said that what I had initially suggested sounded complicated and she would have to think about how to draft it.
Here are the facts:

• Property purchase price £635,000
• John putting in £220,000
• Sarah putting in £150,000
• Mortgage of £265,000, to be paid 50/50. All other things equal going forwards.
• Not married, no children, neither planned.
• Tenants in common.

I have suggested:

• 58% to be split 59.5% John and 40.5% Sarah
• 42% to be firstly used to clear any outstanding mortgage, then split equally between John and Sarah.

but this doesn't cover the case of house going down in value and 42% not covering the mortgage debt if we had to sell next year.
I have spoken with an IFA who owes me a favour, and he has suggested a straight 59.5/40.5 split, but I feel this doesn't cover the equal contributions going forwards in terms of the mortgage payments.

Here is what he has written:
Do you not just state “on sale any equity is split 59.5% John and 40.5% Sarah as per the contribution split individually made at outset”?
But the equity is growing in proportion to the amount you put in.
The debt is being repaid equally.
I think it does work so long as you don’t want a share of the fact that as you have paid in more the repayments are less because of you. I am not a solicitor though.

I have said:
"But if we sold at the end of the mortgage term, having paid the entire mortgage part 50/50 (it’s not an interest-only mortgage BTW), a fair overall split would be 55.5 / 44.5 wouldn’t it? As Sarah will have paid in a total of £150,000 + £132,500 (half the mortgage), and John will have paid in £220,000 + £132,500

So, if the house doesn’t change in value, and is still worth £635,000:

John: 352,500 (55.51%)

Sarah: 282,500 (44.49%)

So it’s like a sliding scale as time goes on.

I think you could phrase it like :

“58% to be split 59.5% John and 40.5% Sarah

42% to be firstly used to clear any outstanding mortgage, then split equally between John and Sarah.”

But the problem is this doesn’t work if the mortgage debt is more than 42% of the property value, i.e. house goes down in value.

He seems to think the straight 59.5/40.5 split is the fairer option for both parties.

Any ideas folks?

Thrugelmir

Why not simply take your respective deposits out of the equity first then split the remainder 50/50. 

carl0s

Thrugelmir said:

Why not simply take your respective deposits out of the equity first then split the remainder 50/50. 

That is a simple option, and the one that we might have to go for. It doesn't allow for any growth, and the money will be devalued over time due to inflation though won't it.
John and Sarah hope to never break up, but then doesn't everyone?

lismarie

I have just had one of these drafted. I have sold my house and my equity is £50k. My partner doesn't have a house to sell.
Upon sale of the new house, the first £50k goes to me and the rest is 50/50.

getmore4less

• Property purchase price £635,000
• John putting in £220,000
• Sarah putting in £150,000
• Mortgage of £265,000, to be paid 50/50. All other things equal going forwards.
• Not married, no children, neither planned.
• Tenants in common.

Simple starting point.(assume the starting points have accounted for all costs and the 635 is the total not just the puchase price, adjust if not)
J = 220/635  = 34.65%
S= 150/635 = 22.62%
J+S 265/635 = 41.73%  split 50:50
or simplified 
J = (220+ 132.5)/635 = 55.5%
S = (150 + 132.5)/635 = 44.5%
that is the split that  maintenance and improvements are done.

On sale the value is split at those % then the mortgage is paid off 50:50 from that.

or think of it as 3 shares and the mortgage gets paid out from the 41.73% and any left is either split 50:50 or paid as a debt 50:50 from the other shares.


Might be easier for J to lend S £35k  so everything is 50:50 and deal with the £35k loan as a side agreement.

that is the same as the get your deposits back but much simpler to manage and understand.

A variation is to split the mortgage slightly different.
J = (220+ 97.5)/635  = 50%
S = (150 + 167.5)/635 = 50%

Mortgage is split 
J = 97.5 = 36.8% 
S= 167.5 =  63.2%

emjay2kay

carl0s said:

Here are the facts:

• Property purchase price £635,000
• John putting in £220,000
• Sarah putting in £150,000
• Mortgage of £265,000, to be paid 50/50. All other things equal going forwards.
• Not married, no children, neither planned.
• Tenants in common.

I have suggested:

• 58% to be split 59.5% John and 40.5% Sarah
• 42% to be firstly used to clear any outstanding mortgage, then split equally between John and Sarah.

the equal contributions going forwards in terms of the mortgage payments.

Think you could achieve this just by simplifying it a bit.

"After payment of any outstanding mortgage, legal, sellers fees and taxes, the proceeds of any sale do be apportioned as follows:
- the first £370,000, 59.5% in favour of John and 40.5% in favour of Sarah;
- the remainder be divided equally.
- All shares held as tenants in common"

If you're looking to get more complicated than that and see returns on your deposits then you're going to have to pay a solicitor who specialises in trusts to set up something for you.

carl0s

emjay2kay said:

carl0s said:

Here are the facts:

• Property purchase price £635,000
• John putting in £220,000
• Sarah putting in £150,000
• Mortgage of £265,000, to be paid 50/50. All other things equal going forwards.
• Not married, no children, neither planned.
• Tenants in common.

I have suggested:

• 58% to be split 59.5% John and 40.5% Sarah
• 42% to be firstly used to clear any outstanding mortgage, then split equally between John and Sarah.

the equal contributions going forwards in terms of the mortgage payments.

Think you could achieve this just by simplifying it a bit.

"After payment of any outstanding mortgage, legal, sellers fees and taxes, the proceeds of any sale do be apportioned as follows:
- the first £370,000, 59.5% in favour of John and 40.5% in favour of Sarah;
- the remainder be divided equally.
- All shares held as tenants in common"

If you're looking to get more complicated than that and see returns on your deposits then you're going to have to pay a solicitor who specialises in trusts to set up something for you.

I think you are correct that we are going to have to go for this simple option. It still doesn't cover negative equity if we had to sell in 1 years' time. Although I suppose "the first £370,000" could be taken to mean any part thereof, kind of thing. What do you think?

Thanks for all the other replies so far everyone, I haven't read through them all yet and will need to take a moment to read carefully.

emjay2kay

carl0s said:

emjay2kay said:

carl0s said:

Here are the facts:

• Property purchase price £635,000
• John putting in £220,000
• Sarah putting in £150,000
• Mortgage of £265,000, to be paid 50/50. All other things equal going forwards.
• Not married, no children, neither planned.
• Tenants in common.

I have suggested:

• 58% to be split 59.5% John and 40.5% Sarah
• 42% to be firstly used to clear any outstanding mortgage, then split equally between John and Sarah.

the equal contributions going forwards in terms of the mortgage payments.

Think you could achieve this just by simplifying it a bit.

"After payment of any outstanding mortgage, legal, sellers fees and taxes, the proceeds of any sale do be apportioned as follows:
- the first £370,000, 59.5% in favour of John and 40.5% in favour of Sarah;
- the remainder be divided equally.
- All shares held as tenants in common"

If you're looking to get more complicated than that and see returns on your deposits then you're going to have to pay a solicitor who specialises in trusts to set up something for you.

I think you are correct that we are going to have to go for this simple option. It still doesn't cover negative equity if we had to sell in 1 years' time. Although I suppose "the first £370,000" could be taken to mean any part thereof, kind of thing. What do you think?

Thanks for all the other replies so far everyone, I haven't read through them all yet and will need to take a moment to read carefully.

Yeah, I think if you only end up with £300,000 after everything then you'll both take a big hit of course but it will at least be in proportion to what you put in and John will still get back more money overall than Sarah. You both face the same amount of risk. Not ideal but then I can't think of a negative equity situation that is!

carl0s

How about this?

• 58% of the value to be apportioned 59.5% John and 40.5% Sarah
• 42% to be used to clear any outstanding mortgage, then split equally between John and Sarah.
• Any additional outstanding mortgage, legal, sellers fees and taxes to be made up equally from John and Sarah's shares.

Thrugelmir

carl0s said:

Thrugelmir said:

Why not simply take your respective deposits out of the equity first then split the remainder 50/50. 

That is a simple option, and the one that we might have to go for. It doesn't allow for any growth, and the money will be devalued over time due to inflation though won't it.
John and Sarah hope to never break up, but then doesn't everyone?

What's more important money or the relationship ?   Declarations of Trust can run to pages to cover every single eventuality of the financial relationship between the parties and who paid for what. 

carl0s

Thrugelmir said:

carl0s said:

Thrugelmir said:

Why not simply take your respective deposits out of the equity first then split the remainder 50/50. 

That is a simple option, and the one that we might have to go for. It doesn't allow for any growth, and the money will be devalued over time due to inflation though won't it.
John and Sarah hope to never break up, but then doesn't everyone?

What's more important money or the relationship ?   Declarations of Trust can run to pages to cover every single eventuality of the financial relationship between the parties and who paid for what. 

Well what do you think of the above suggestion? Too complicated? It's only 3 short sentences.