Co-Ownership Agreement Between Unmarried Couples
If you are considering buying a house with someone who is not your spouse, it is crucial that you have a co-ownership agreement in place. A co-ownership agreement is a legal document that describes how ownership of the property will be divided, what will happen if one of the owners dies or wishes to sell, and other issues that will be critical to resolving any disputes surrounding ownership of the property.
Joint ownership of real estate has many potential pitfalls. A poorly drafted ownership agreement can significantly affect your interest in the property and your estate. If you wish to purchase property with a co-owner or share an ownership interest in real estate with someone who is not your spouse, consult with experienced Michigan real estate attorney Bill Ager first. Bill proudly offers real estate services for a reasonable flat fee and is pleased to have been helping people in Ann Arbor and throughout Washtenaw County since 1982 by addressing a wide range of legal needs.
What Is a Co-Ownership Agreement?
A co-ownership agreement is a legal agreement between two or more people who own property together. The document should address all the terms and conditions governing how ownership will be shared, including what will happen if one owner wishes to sell the property and what will happen if one of the co-owners dies.
Types of Property Ownership in Michigan
In Michigan, there are three ways people who are not married to each other can jointly own property. These different types of co-ownership provide the parties with different rights and responsibilities.
Tenancy in Common
A tenancy in common is created when real property is conveyed to two or more people who are not married to each other and there is no mention of a joint tenancy or a right of survivorship.
In a tenancy in common, all owners have equal rights to use or occupy the entire property, so long as the shared ownership stays intact.
When one owner dies or sells their share, the remaining owners are entitled to their fractional share of the property. For example, if there are three owners of a property and one co-owner dies, the deceased owner’s share becomes part of their estate, and the remaining owners are entitled to ⅓ of the property’s value.
Joint Tenancy with a Full Right of Survivorship
In a joint tenancy with a full right of survivorship, when one owner dies, their share passes to the remaining owners.
To create a joint tenancy with a right of survivorship, the property deed must specifically identify a right of survivorship. A right of survivorship overrides a will and can be used to transfer property outside of probate.
One problem with owning property jointly with full rights of survivorship is that you cannot file a partition court action asking a judge to sell or divide the property. Persons who hold title to property as joint owners or tenants in common may file a lawsuit to partition the property. A partition lawsuit forces the court to divide the property or sell the property and divide the sale proceeds between owners. Persons who hold title to property as joint tenants with full rights of survivorship are unable to partition the property
Joint Tenancy (without a Right of Survivorship)
When real estate is conveyed and the document identifies the ownership interest as a joint tenancy but does not include a right of survivorship, the property is owned as a joint tenancy. In a joint tenancy, when one co-owner conveys their interest to a third party, it creates a tenancy in common between the new owner and the remaining owners. If one co-owner dies, the other tenants receive an equal share of the deceased owner’s share.
The difference between a joint tenancy and a joint tenancy with a right of survivorship is that a joint tenancy can be severed, while a joint tenancy with a right of survivorship can only be severed by an act of all of the joint owners.
What Happens to the Property When a Co-Owner Dies
A critical issue in situations where real property is owned by two or more people who are not married to one another is what will happen to the property when one of the owners dies.
Depending on which type of joint ownership you choose, a co-ownership agreement can be an effective way to transfer real estate outside of probate. However, joint ownership issues can be incredibly complicated and a poorly drafted co-ownership agreement can result in unwanted consequences.
Items to Include in a Co-Ownership Agreement
In addition to addressing what will happen if one of the co-owners dies, a thoughtfully-prepared co-ownership agreement should also address questions such as:
- How will the property be paid for, and how will title be held?
- What legal interest will each owner have in the property?
- What are the ownership percentages?
- How will payments be divided between the owners?
- What happens if an owner is unable to pay their share?
- What if an owner wants to borrow against the equity in the property?
- What are the owners’ responsibilities for maintenance and upkeep?
- Can the owners sublet the property?
- How will guests be handled?
- What if an owner wants to sell or move out?
- What if an owner wants to end the agreement? Can the owners buy one another out?
- How will profits or losses be shared if the property is sold?
- How will the owners resolve disputes?
Ager Law: Proudly Serving Washtenaw County Since 1982
If you are considering purchasing real estate with a co-owner who is not your spouse, consider consulting with experienced Michigan real estate attorney Bill Ager. Bill has extensive experience handling complex real estate transactions in Washtenaw County and is ready and available to answer your questions, offer candid advice that is tailored to your unique situation, and prepare the documents necessary to protect your interests and help accomplish your goals.
Bill is proud to offer comprehensive legal services for a reasonable flat fee. To learn more about how he can help, speak to Bill by calling (734) 649-0784, email firstname.lastname@example.org, or use our online contact form.