Relationships are much more complicated these days.
It’s common for couples to purchase a property before they have walked down the aisle or even lived together, which raises the question of who gets the house if they break-up?
It’s surprising more couples don’t give this a second thought.
They assume they’ll be together forever, and don’t put a lot of research into how the mortgage will be structured or how the asset will be divided if they separate.
So today I would like to spend a bit of time explaining this law surrounding property ownership.
The nuts and bolts of joint tenancy
In Australia, if you’ve bought a property with your partner then you have entered into either a joint tenancy or a tenancy in common agreement.
These are legally binding frameworks that have very different rules depending on which agreement you choose.
Let’s start by explaining joint tenancy because it is by far the most common agreement that couples enter into.
In this type of arrangement the couple own equal parts of the property.
This is regardless of who the main contributor to the mortgage is.
For example, in a joint tenancy, one partner may start earning more and hence paying more off the mortgage but this does not increase their stake in the asset.
A joint tenancy has no severable share, which means if one of the partners passes away, then the surviving spouse will enjoy the right of survivorship.
It is important to remember that this means they’ll also incur full responsibility for the outstanding debt.
The joint tenancy, therefore, is all about equality and lenders will treat the couple as one person, or one mortgagee.
Tenancy in common
In some cases, couple will opt for a tenancy in common arrangement.
This means that ownership is not automatically split 50-50, but is determined by the financial contribution of each person.
So if you contribute $100,000 to the $400,000 mortgage, then you’re entitled to 25 per cent of the asset, while your partner holds the other 75 per cent.
If you separate from your partner, then under a tenancy in common agreement you maintain your share of the property and you can sell your portion at any point.
In the event your partner dies in a tenancy in common, their share doesn’t automatically default to you, but rather is delegated in accordance with their will.
That’s why if you’ve entered into a tenancy in common arrangement and have split from your partner, make sure you update your will.
However, any mortgage taken out under tenancy in common is typically a shared responsibility between all parties.
If one person defaults, then the others will need to make up the repayments.
For both frameworks, a co-ownership agreement must be made which dictates how rights and responsibilities of the property are divided.
Finally, if you are not sure whether you hold the property with your spouse as a tenancy in common or joint tenancy, then there is a quick search you can do to find out.
Simply obtain a copy of your title transfer document or land registration document, which will tell you the nature of the tenancy.
So you can see now how important it is to understand the ins and outs of both agreements.
Entering into the wrong one can have serious financial consequences.
Take some time to think about which path will work best for you and your partner.