Advanced planning is key to making relationship work

Q: I would like to get an impartial second opinion from you. I have been divorced for about 15 years and, for the last 10 years, my boyfriend and I have been renting a house together. We have become very close with the owner of the house and he’s offered to sell it to us under very favorable terms. We have decided to buy the house and, basically, we will split the cost. My two adult children do not get along with my boyfriend and they think it is a bad move to buy a house together. Their argument is that, if things don’t work out, it could be a very messy separation. My question to you is, if we do buy the house together and things don’t work out, what happens? In addition, without having to amend my will, is there anything I can do to make sure that if I pass away, my boyfriend, as opposed to my children, get my house?

A: Your son is correct that, if your relationship dissolves, dealing with the house can be messy. However, it doesn’t have to be that way. In fact, it can be relatively simple. The key is to do some pre-planning before you actually buy the house.

Probably the simplest way to address the issue where one party wants out of the relationship is to have an agreement in writing prior to purchasing the house. For example, the agreement can provide that one person would buy the other one out based upon the fair market value of the home or the agreement can call for the house to be sold and the parties split the proceeds. The key is to discuss these issues and reach an agreement that works for both parties before you buy the home. You don’t want to wait to the last second, but you want to give yourself some time to discuss the issue — enough time so it can be put in writing and signed and witnessed by both parties.

I recognize that you have lived together for a number of years and that you’re obviously committed to each other by taking the next step in your relationship. That being said, I will tell you the same thing I tell many couples who are getting married, particularly when it’s a second marriage: you need to pre-plan for if the relationship does not work. For marriages, I recommend a pre-nuptial agreement and, in the case at hand, I recommend some sort of co-habitation agreement that deals with the house.

With regard to your second question, if you do not want to amend your will, the best thing you can do to make sure the house goes directly to your boyfriend is to title the house as joint tenants with full rights of survivorship. What that would mean is that, upon either one of your deaths, the other one would own the property outright by operation of law. There would not have to be a probate or any other legal proceeding. The only thing that would need to be done is to record a death certificate.

It is important that your deed reads “joint tenants with full rights of survivorship” as opposed to “tenants in common.” What tenants in common means is that, upon one of your deaths, your share of the house would pass to your beneficiaries based upon your will or trust. Since you want to avoid any judicial proceedings or any potential conflict, you should make sure the property is titled “joint tenants with full rights of survivorship.”

Whether it’s starting a business with a partner or buying a home with a significant other, you need to discuss and document what happens if the partnership does not work. By discussing these issues and reaching some sort of agreement that is recorded in writing, I believe that not only is it an act of maturity, but it will also increase your chance of success.

Good luck!

Rick Bloom is a fee-only financial adviser. His website iswww.bloomassetmanagement.com. If you would like him to respond to questions, email rick@bloomassetmanagement.com.