Declaration of Trust help

Mmermaid · 19 June 2018 at 1:46PM

Hi all,

This is my first post here and looking for other's experience with buying a property with a partner when you are not married. We are currently drawing up our Declaration of Trust but we are having trouble working out how it should be set out so that the fairest possible outcome is reached. Our solicitor will not provide legal advice as she is acting on behalf of us both, therefore we are trying to come to an agreement together.

The details:
House price: 390000
Mortgage: 330,500 (85%)

I have contributed 14% of the deposit = 54600
My partner has contributed 1% of the deposit = 3900

The mortgage, bills and legal fees will all be split 50/50.

Things we are unclear on:
1. We are unsure whether to write percentages of ownership into the deed or whether we should state that we each get back what we've contributed and split any equity 50/50. What method works out fairer in the long run for both of us?

2. How would we write a clause in about what would happen if one of us were to buy the other out? Based on our current situation, it would be likely that in the event our relationship were to end, i would want to buy his share. What needs to be in place in the deed to ensure this is done fairly? I am assuming i would need to consider the legal fees/expenses involved for buying him out of the property?

3. What other clauses did you have written into your DOT if any?

Finally, i just wanted to say that I'm not interested in hearing about how if we were committed then we would split everything 50/50. If we get married this will all be moot and everything will of course be split but up until that point, we wish to protect ourselves financially.

Any thoughts would be appreciated

xylophone · 19 June 2018 at 1:53PM

Our solicitor will not provide legal advice as she is acting on behalf of us both,

But if she has agreed to act for you both, then she should be advising on the fairest solution for you both?

Otherwise, one of you instructs another solicitor so that conflict of interest is avoided?

getmore4less · 19 June 2018 at 1:54PM

Mmermaid wrote: »

The mortgage, bills and legal fees will all be split 50/50.

You start with the full costs to purchase.

Any costs paid out need to be included as part of the deposit amounts.

running costs for the house should be kept separate from the costs of owning and maintenance/improvement.

If you go down the you get your money back route that is equivalent to lending each other 1/2 your cash input on an interest free basis.

For you that is net lending of around £25k to your OH

Tom will be along to describe the other methed(s)

Mmermaid · 19 June 2018 at 2:02PM

xylophone wrote: »

But if she has agreed to act for you both, then she should be advising on the fairest solution for you both?

Otherwise, one of you instructs another solicitor so that conflict of interest is avoided?

I know, honestly I am a little bit drained with them but whenever i ask for advice or examples of how percentages vs getting back what you put in affects both of us, she asks me to seek advice as she cant advise me which to choose due to a potential conflict. :wall: :mad: I would pull out and go independently but we are actually due to exchange/complete in a few weeks and time is of the essence!

We aren't both unhappy with either option really we just want to understand the pros and cons of both so we can decide on which is fair.

pink_pirlie · 19 June 2018 at 2:47PM

We did
Me - 95% of 30% sale price
Partner - 5% of 30% sale price
Remainder once mortgage and costs have been taken off is split 50/50

You could do the same.

You get say 93% of 15%
Partner gets 7% of 15%
Remainder once mortgage repaid and costs taken off is split 50/50

There are alternatives ways. There was a post on the last week or so exactly the same. May give you some alternative ideas.

https://forums.moneysavingexpert.com/showthread.php?t=5853268&page=1

Mmermaid · 19 June 2018 at 3:28PM

Thanks all for the comments.

Probably should give some more info -

The reason i am asking for help is because i had thought I had worked out a fair way using percentages... but my solicitor said that it isn't a fair way to do so and they don't generally recommend using percentages in the first place. When i asked her to explain why she said she couldn't give me any legal advice but percentages are not the best route because it assumes that everything else is split in these percentages, such as improvements and the mortgage (i really dont understand how thats the case), and i would need to sign a disclaimer if i want to go down the route of percentages.

I had worked out that I would get 56.5% and my partner 43.5% on the sale of the property. This is based on my 14% input to the deposit, his 1%, then the 85% split equally. (14+42.5 for me 1+42.5 for him)
Is that fair or completely incorrect?

I haven't yet got to what would need to be written in as a clause if i buy him out. I really am going round in circles with this and cant wrap my head around what is fair and what isn't and the reasons why

pink_pirlie · 19 June 2018 at 4:08PM

Your initial thought with the percentages as you have them wouldn't be quite right as you need to factor in the bank's interest and the fact you are paying that back 50/50.

The split I set out would be a more fair distribution.

As an example -

Assume you buy £100k - on day 1
You own 14k, your partner owns 1k, the bank owns 85k

If the house goes up in value to 120k (20% growth)
Your 14k investment has grown to 16.8k
Your partner's 1k investment has grown to 1.2k

The remaining 85% of the property which originally belonged to the bank and has also grown in value. As the bank's interest was repaid 50/50 it would be fairest to split this 50/50.

For ease assume the mortgage was interest only. There would be 17k left after the mortgage has been repaid (£102k less £85k Mortgage) . This you share this 50/50 as you equally contributed to the mortgage payments.
Under this scenario-
You end up with £25,300. Your partner £9,700.

If you did it your suggested way-
You would end up with 56.5% of the 35k equity after the mortgage has been repaid, which is only £19,775. Your partner would get £15,225.

The percentages you set out are what you would own of the house once the mortgage has run its course not during the period of the mortgage.

You should also maybe consider what you would do it prices were to fall and how you would pay for any negative equity.

We didn't go into that much detail as it didn't feel worth it. We had the DOT as my partner insisted. I was happy to go without even though I was investing over £60k to his £4k. I trust him 100% and know he wouldn't screw me if things were to go sour. But he is an over thinker and it calmed his mind.

pink_pirlie · 19 June 2018 at 4:41PM

That is your contributions.

Between you, you are putting down a 15% deposit.
Of which you are paying 14% and your partner 1%.

Therefore of the 15% of the property value you own on day 1 -

You own- 14/15 = 93.33333%
Your partner owns - 1/15 = 6.66666667%

To make it fair you should consider that 15% separately to the 85% which the bank owns which you are repaying back on a 50/50 basis.

In theory when paying for any capital investments to the property what you each pay should also be split according to your ownership share to not affect the share. But I wouldn't worry about that personally and if you're already confused it would just add to your brain blowing up.

Mmermaid · 19 June 2018 at 4:55PM

aha! This makes sense, sorry i was being thick. So basically that ensures we protect the initial investment

Thrugelmir · 19 June 2018 at 5:46PM

One of you should seek independent advice elsewhere. Once you've drafted an outline of what you consider a fair agreement. The other solicitor can then discuss the implications with you objectively, from that one party's perspective. Asking your solicitor what if from two different viewpoints isn't feasible. As one day this piece of paper might be the basis of a legal dispute in Court.

TBagpuss · 19 June 2018 at 7:44PM

One option is to word it to say that on any sale or separation you get 14% of the proceeds of sale, he gets 1%, then the mortgage and costs of sale a paid, then the net balance is split equally.

If you want to ad in about buying each other out you can include that. You'd need to be clear about whether ether of you could do so (and if you can't agree who gets to buy out the other, provide for the house to be sold on the open market), or could agree that you get first refusal, and a set timescale to complete, and then if you have not paid him in that time, he gets the chance to buy you out, failing which it is sold.

If you want to start adding in more than that you may want to look at having a cohabitation agreement as well, to include a wider range of issues.

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Declaration of Trust help

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