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• FIRST POST
• planetflash
• 12th Aug 18, 10:34 PM
• 2Posts
• 1Thanks
planetflash
My partner and I are in the process of buying a house and realise we need a declaration of trust as our initial deposits differ. I've searched the internet and several posts in this forum about how we can calculate who gets what in the event of a separation should it occur. However, each way we do it seems unfair to someone, so how do we decide!? Please help us as it is hurting our brains.

We already have a solicitor and they are happy to put in whatever we decide and have offered several of the solutions outlined here. It's just that we can't decide what is fair.

Partner 1 deposit: £90,000
Partner 2 deposit: £10,000
House price: £410,000
Mortgage amount: £310,000
Assumed sale price after 5 years: £575,000
Percentage increase after 5 years: 140%
Mortgage capital repaid after 5 years: £43,200 (paid equally)
Mortgage remaining after 5 years: £266,800
Proceeds from sale after repaying mortgage: £308,246

Option 1: Return initial deposits, split remainder
Partner 1 receives: £90,000 + (£208,246/2) = £194,123
Partner 2 receives: £10,000 + (£208,246/2) = £114,123
Pros: Shares can't be diluted by investment at a later date
Cons: Partner 1 gets no return on investment

Option 2: Return initial deposits multiplied by % increase in property, split remainder
Partner 1 receives: (£90,000 x 140%) + (£167,991/2) = £210,225
Partner 2 receives: (£10,000 x 140%) + (£167,991/2) = £98,021
Pros: Partner 1 gets return on initial investment
Cons: Partner 1 receives less if Partner 2 invests at a later date via overpayments/renovations. Partner 2 feels hard done by as Partner 1 receives larger share.

Option 3: Floating shares with mortgage repayments
Partner 1 share = £111,600/£143,200 = 77.93%
Partner 2 share = £31,600/£143,200 = 22.07%
Partner 1 receives: £308,246 x 77.93% = £240,225
Partner 2 receives: £308,246 x 22.07% = £68,021
Pros: Partner 1 gets large return on initial investment
Cons: Partner 1 receives less if Partner 2 invests at a later date via overpayments/renovations. Partner 2 feels very hard done by as Partner 1 receives much larger share.

As you can see, due to the large difference in initial deposits, which way we cut it results in quite different incomes.

Things we're struggling with:
Partner 1 explaining to Partner 2 reasons why he should get a larger return given a larger initial investment
Understanding why if Partner 2 invests at a later date via overpayments or renovations why the amount of money that Parter 1 receives would go down.
Ultimately deciding which method is the fairest.

Is there something we're missing? Is our maths off? Or is it just a hard decision to decide what to do?
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• 00ec25
• By 00ec25 12th Aug 18, 10:53 PM
• 6,805 Posts
• 6,421 Thanks
00ec25
goodness knows how many times this question crops up on here

there is only 1 fair way, each person is 100% exposed to 100% of the ups and 100% of the downs of the % of the property they own, having paid for their share by injecting a deposit lump sum, and then paying 50% of the remaining funding (ie the mortgage) to acquire their respective shares

if partner 2 is going to be bitter and twisted because partner 1 gets more from the property, then partner 2 should not be a partner at all, and should go off and buy their own investment on their own
Last edited by 00ec25; 13-08-2018 at 8:20 AM.
• yllop1101
• 12th Aug 18, 10:54 PM
• 70 Posts
• 74 Thanks
yllop1101
I would go for option 1 and when I bought with my partner we never considered otherwise. When you say 'partner 1 gets no return on investment', the return is the increase in house price (which seems a very ambitious figure but that's another matter!). Yes, you don't get a bigger return than partner 2, but when you contribute jointly and equally to the mortgage and all renovations it seems fair enough.
The other options get confusing otherwise, who contributes to what, and I can imagine could build some resentment and result in disagreements between partners of who should pay for what.

In my eyes, as long as each partner gets out at least what they put in, the rest is a bonus to be shared.
• 00ec25
• By 00ec25 12th Aug 18, 11:01 PM
• 6,805 Posts
• 6,421 Thanks
00ec25
In my eyes, as long as each partner gets out at least what they put in, the rest is a bonus to be shared.
Originally posted by yllop1101
unfair,

so partner 1 injects x9 more than partner 2 but you think it fair that partner 1 gets back 90k without any impact of inflation?

5% inflation
partner 1 loses £450
partner 2 loses £50
totally unfair
• GoingOn30
• 12th Aug 18, 11:40 PM
• 93 Posts
• 65 Thanks
GoingOn30
I can see why partner 1 would want to protect their deposit when it's so much larger than partner 2 but to quibble over a few grand when you've tens of thousands in equity seems a bit petty/greedy in the grand scheme of a committed relationship.
Me and my other half are in a similar situation and went for option 1, I'm partner 1.
And a 40% price rise in 5 years? You're having a laugh! So it's probably all much less of an issue realistically...
• cjdavies
• By cjdavies 12th Aug 18, 11:50 PM
• 3,444 Posts
• 3,692 Thanks
cjdavies
The only problem is you only done examples based on house prices rising not crashing.
• Tom99
• By Tom99 13th Aug 18, 12:16 AM
• 2,489 Posts
• 1,678 Thanks
Tom99
Option 2 is the correct choice.

So your basic DOT will say that on a sale and after paying sale fees and the outstanding mortgage you split what's left:

Partner 1: 21.95% (90/410) of the gross sale price less cost of sale plus half of remainder.
Partner 2: 2.44% (10/410) of the gross sale price less cost of sale plus half remainder.

The above formula works fine whilst the mortgage, including and mortgage overpayment is paid 50/50 and there is no added value work carried out.

When it gets complicated is either where only one party makes a overpayment or one/both parties pay for improvement works which will add value.

Then you need to revalue the property at that point in time and work out how much additional share these extra amounts are buying.

Lets say when the house is now worth £500,000 Partner 1 overpays £20,000 off the mortgage. The will therefore, at that time, have bought 4% of the property (20/500). Therefore their initial cut on any future sale should now be 21.95% + 4% = 25.95%

You can do the same with renovation costs. Lets say when the property is worth £500,000, £100,000 is spend, £80,000 by Partner 2 and £20,000 by partner 1. Also after the spend the property has increased in value by the same £100,000 to £600,000.

Just before the work Partner 1 will have an initial cut or 21.95% x £500,000 = £109,750, plus the £20,000 for work = £129,750 = 129.75/600 = 21.625% of new £600,000 house value.

Partner 2 will have an initial cut of 2.44% x £500,000 = £12,200 plus £80,000 for work = £92,200 = 92.2/600 = 15.37% of new £600,000 house.

After making these adjustments to the initial cuts, the remainder is still split 50/50 providing that's how the basic mortgage payments continue to be split.

The above figures assume the £410,000 purchase price is the total including costs, legal stamp duty etc.
Last edited by Tom99; 13-08-2018 at 1:46 AM.
• Comms69
• By Comms69 13th Aug 18, 9:36 AM
• 3,654 Posts
• 3,473 Thanks
Comms69
Surely it's not worth buying together if you're already considering how it will all be split.
• getmore4less
• 13th Aug 18, 10:08 AM
• 32,676 Posts
• 19,658 Thanks
getmore4less
There are 2 basic ways

The get your money back then split 50:50(having paid 50:50)

this is the equivalent to lending the OH 50% of the deposit on an interest only basis

equity based

You own the share of the property you paid for and the debt you service

you get back that share from net sale(before mortgage is paid off) and pay your share of the mortgage from that.

if you want to go the second route start by forgetting that it is a mortgage that is just a method to raise the cash

pretend you got the money independently that should help understand what you are buying.

if the person with the lower deposit is income rich or will get money they can invest later then you can balance by buying 1/2 each, splitting the debt differently to 50:50 to get that balance.

to get round your invest/overpay conundrum

You invest in the property at the ownership % and never change it, that keeps it really easy.

Overpayments change the debt you owe not the share of the house.
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if you can't get your heads round the equity options then go for the really simple one.

lend your OH £40k so the deposits are equal at £50k each

own 50:50, mortgage 50:50

all improvements maintenance and mortgage get paid 50:50.

Decide the terms of the loan, interest free, mortgage rate 10% and a term, 10 years 50 years, forever(interest only). whatever

Set up a payment plan on the side for that £40k loan.
• planetflash
• 13th Aug 18, 4:45 PM
• 2 Posts
• 1 Thanks
planetflash
Thanks for all your help so far. Some interesting things to consider.
goodness knows how many times this question crops up on here
Originally posted by 00ec25
True. I'd gotten a lot of information from other searches, but wanted to make sure I wasn't missing something or had my maths off.
The only problem is you only done examples based on house prices rising not crashing.
Originally posted by cjdavies
This is valid. Hoping that over time this won't be the case. I feel that whatever we decide regarding the change would cover the ups as well as downs should they come.
Surely it's not worth buying together if you're already considering how it will all be split.
Originally posted by Comms69
Don't be so ridiculous. Best to plan for eventualities as per all other advice we've received. Also, it would be utilised in the case of a death, not just a relationship breakdown. It
s worth protecting the largest investment we're ever likely to make for any eventuality.
And a 40% price rise in 5 years? You're having a laugh! So it's probably all much less of an issue realistically...
Originally posted by GoingOn30
Possibly, I just based this on what my current property has done in the 4 years I've owned it. Besides, the complication would be the same over a much larger timescale (even after 15/20 years etc.)
• Comms69
• By Comms69 13th Aug 18, 4:46 PM
• 3,654 Posts
• 3,473 Thanks
Comms69
Don't be so ridiculous. Best to plan for eventualities as per all other advice we've received. Also, it would be utilised in the case of a death, not just a relationship breakdown. It
s worth protecting the largest investment we're ever likely to make for any eventuality.
Originally posted by planetflash

I agree, if you don't trust your partner it's absolutely worth it.
• fairy lights
• 13th Aug 18, 5:10 PM
• 8,594 Posts
• 28,577 Thanks
fairy lights
I agree, if you don't trust your partner it's absolutely worth it.
Originally posted by Comms69
Trusting your partner doesn't mean your relationship won't breakdown somewhere down the line. It would be foolish not to protect your assets.
• getmore4less
• 13th Aug 18, 5:56 PM
• 32,676 Posts
• 19,658 Thanks
getmore4less
The don't do it mob don't count for death where the relationship is over and unless 100% is going to the OH you need a plan for how equity is distributed.

There are loads of scenario work through them all.
• oozle1989
• 14th Aug 18, 11:42 AM
• 175 Posts
• 188 Thanks
oozle1989
My OH and I also did a declaration of trust. I was putting in 100% of the deposit of 80k, he put in nothing. Ours says that if we split and sell I get my 80k back, the rest is shared equally. I am happy with that.

We were also told we had to make a will, in the eventuality of a death. In this case my full share will go to him, and vice-versa if either of us die.

If you end up getting married i think the DOT becomes irrelevant anyway.
• Comms69
• By Comms69 14th Aug 18, 11:45 AM
• 3,654 Posts
• 3,473 Thanks
Comms69
My OH and I also did a declaration of trust. I was putting in 100% of the deposit of 80k, he put in nothing. Ours says that if we split and sell I get my 80k back, the rest is shared equally. I am happy with that.

We were also told we had to make a will, in the eventuality of a death. In this case my full share will go to him, and vice-versa if either of us die.

If you end up getting married i think the DOT becomes irrelevant anyway.
Originally posted by oozle1989
So you're worth more dead than alive...
• Grezz24
• By Grezz24 14th Aug 18, 12:23 PM
• 120 Posts
• 74 Thanks
Grezz24
So you're worth more dead than alive...
Originally posted by Comms69
surely most people are with life insurance / 3x work salary to spouse / house equity etc.
• Comms69
• By Comms69 14th Aug 18, 12:25 PM
• 3,654 Posts
• 3,473 Thanks
Comms69
surely most people are with life insurance / 3x work salary to spouse / house equity etc.
Originally posted by Grezz24
Well not quite, unless you only plan working for two years for example.

In this case it's literally better to hope for death than separation.
• 14th Aug 18, 1:54 PM
• 2,835 Posts
• 4,070 Thanks
Purchase price (100%) = deposit + mortgage
If purchase price = £410k then deposit = 24% of purchase price (£100k/£410k)
Partner 1 contributes £90k of £100k deposit or 90% of 24% of total purchase price (so 21.6%).
The mortgage component (76%) is split equally (so 38% each), therefore in total partner 1 has contributed to/is liable for 59.6% (21.6 + 38) of the total purchase price. Partner 2 has contributed to/is liable for 40.4%.

This should be the split of the net sale proceeds, regardless of whether prices have gone up or down - each gets back the same proportion of what they put in, or were liable for during the life of the mortgage or relationship, whichever is the shorter.
• getmore4less
• 14th Aug 18, 6:47 PM
• 32,676 Posts
• 19,658 Thanks
getmore4less
Purchase price (100%) = deposit + mortgage
If purchase price = £410k then deposit = 24% of purchase price (£100k/£410k)
Partner 1 contributes £90k of £100k deposit or 90% of 24% of total purchase price (so 21.6%).
The mortgage component (76%) is split equally (so 38% each), therefore in total partner 1 has contributed to/is liable for 59.6% (21.6 + 38) of the total purchase price. Partner 2 has contributed to/is liable for 40.4%.

This should be the split of the net sale proceeds, regardless of whether prices have gone up or down - each gets back the same proportion of what they put in, or were liable for during the life of the mortgage or relationship, whichever is the shorter.
Algorithms should work for all values and all time periods(as you point out)

That fails the simplest of does it smell right tests

Sell on day one adjust for cash costs(not mortgage as nothing paid)

P1 put in £90k gets back £59,600
P2 put in £10k gets back £40,400

Maybe you missed something important from your description because as it reads now it is far from ideal.
• Tom99
• By Tom99 14th Aug 18, 10:57 PM
• 2,489 Posts
• 1,678 Thanks
Tom99
Purchase price (100%) = deposit + mortgage
If purchase price = £410k then deposit = 24% of purchase price (£100k/£410k)
Partner 1 contributes £90k of £100k deposit or 90% of 24% of total purchase price (so 21.6%).
The mortgage component (76%) is split equally (so 38% each), therefore in total partner 1 has contributed to/is liable for 59.6% (21.6 + 38) of the total purchase price. Partner 2 has contributed to/is liable for 40.4%.

This should be the split of the net sale proceeds, regardless of whether prices have gone up or down - each gets back the same proportion of what they put in, or were liable for during the life of the mortgage or relationship, whichever is the shorter.

As getmore4less says a straight 59.6%/40.1% does not work until all the mortgage is paid off.
That is why you need a dynamic formula which will adjust as time goes by and prices increase and the mortgage is gradually paid off eg:

Partner 1: 21.95% (90/410) of the gross sale price less cost of sale plus half of remainder.
Partner 2: 2.44% (10/410) of the gross sale price less cost of sale plus half remainder.

Its the remainder part which will vary from £0 on day two up to the remaining 75.61% of property value when the is no longer a mortgage.
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