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Every Monday, we take on one of your important personal finance concerns by consulting a group of financial experts for their advice. If you have a general financial question, a concern, or simply want to chat about something related to personal finance, feel free to leave a comment or reach out to me via email at [email protected].
This week’s question comes from an anonymous reader who reached out via email:*
I recently purchased a house and plan to marry within the next year (though we haven’t set a date yet). The house will be our primary home. I bought it on my own credit, only considering my income and assets when applying for the mortgage loan. No mortgage payments have been made yet, except for the down payment, which was entirely my responsibility. We’ve agreed verbally to split the mortgage equally. I know that not all marriages last, so I’m wondering if we should establish a formal legal agreement that clearly outlines the percentage of home equity each of us holds before marriage? Since we don’t have other assets, a prenuptial agreement doesn’t seem necessary. My fiancé is comfortable with uncertainties, but I prefer the peace of mind that comes from having things clearly defined upfront.
Here’s what financial experts generally have to say about this issue, though keep in mind that it affects individuals differently—if you’re looking for tailored advice, consulting a financial planner would be a wise choice.
Think About What Brings You the Most Peace of Mind
The answer to your question lies in your last statement. While your fiancé may be okay with uncertainties, you’re not—so having a written agreement seems like a logical step. And you probably already know this deep down.
Money is the leading cause of stress in relationships. A formal agreement won’t resolve all potential issues, but it will make navigating them easier if you and your fiancé ever part ways, and it will give you the assurance you need. Life is unpredictable, and it’s important to protect yourself, especially since it seems you’ve taken on all the responsibility.
It might not be the most romantic option, but it’s grounded in reality. Consider a cohabitation agreement, which works similarly to a prenuptial agreement and will solidify any verbal promises you’ve made.
“If you want your partner to have an ownership stake in the property, you can include that as well,” says Jennifer McDermott, Consumer Advocate at finder.com, regarding such agreements. “It may seem overly formal, but it’s a wise investment to prevent future problems.”
Ideally, you would have addressed this before signing any paperwork, but it’s not too late. A real estate lawyer or family attorney can help create a cohabitation agreement for you. This document should outline how the home’s equity will be divided, what happens if you split up, who will cover other expenses (like utilities, cable), who handles repairs, what to do if one of you can’t pay their portion, what occurs if one of you wishes to sell the house in the future, or if one of you passes away, and so on. This is especially important for you, as you’ve paid the down payment and likely signed the mortgage papers yourself.
It’s Also Beneficial for Your Partner
While your partner might be comfortable with some ambiguity, you should emphasize that creating this agreement is also in their best interest. If your partner doesn’t have title to the property, they won’t own any equity in it, even if they contribute equally to the mortgage payments.
Another aspect to consider: Planning for potential incapacity or death, no matter how uncomfortable that may be. “If you die without a will and intend for your property to pass to your co-owner, it won’t happen unless you specify this in a will,” said Debra Neiman, a Certified Financial Planner, in an interview with Bankrate. “Instead, it may go to your parents, and they might not approve of your relationship.”
“If you want your partner to be in charge of decisions related to your care if you’re sick, or to be the beneficiary of your retirement plan, insurance, or other assets in case of death, you need to formalize it in writing,” adds McDermott. “Make sure to update them as the beneficiary on any policies and have an attorney prepare a Financial Power of Attorney.”
Here are a few additional points to keep in mind:
Be open about your finances. “Before making a big decision like moving in together, it’s essential to be honest about any financial secrets,” advises McDermott. “Topics to discuss include your savings and spending habits, your credit history, and any outstanding debts.”
Open a joint bank account where both halves of the mortgage can be directly deposited.
Set a home expenses budget. “Starting a new home can be costly, and certain items may hold more value for one partner than the other. Prevent conflicts by agreeing on who will buy and ‘own’ big-ticket items, like the sofa or TV,” says McDermott. “Keep a record of purchases to prevent ownership disputes in case of a breakup.”
Talk about how household responsibilities will be shared and who will take care of repairs or hire someone to handle them. For example, if a new roof is needed, who will cover the cost—will it be a joint expense, or will one person pay for it?
Think about what happens if you can’t make mortgage payments. Since you bought the house using your credit, if you or your fiancé miss a payment, your credit score will take a hit.
What if you decide to have children? This is another important conversation to have before creating your agreement.
It’s important to do what makes you feel most at ease while avoiding unnecessary arguments and potential legal issues in the future. Don’t leave any ‘what ifs’ unanswered.”
