Purchasing a home is always a big decision.  However, for non-married couples, location and price are far from the only decisions to be considered.  Before deciding to co-purchase a home with a non-spouse significant other, couples should work with their trusts and estates attorneys to discuss the following issues:

Title is Key

Co-Purchasers can own property in a variety of ways and each form of ownership has its specific characteristics, advantages and disadvantages.

                        Joint Tenants with Rights of Survivorship – Joint tenants own property together and both have the right to use all of the property.  Since both joint tenants own the property together, they both must consent to any sale or transfer, and this can cause significant problems if the joint tenants disagree about selling the property in the future.  At the death of the first joint tenant, property passes automatically to the survivor, without regard to the deceased joint tenant’s Will or estate plan.

                        Tenants in Common – Tenants in common each own half of the property but each owner is entitled to use all of the property.  Since each tenant in common is the owner of half of the property, it may sell its interest without the consent of the other tenant in common, although the market value of a half interest in property may be significantly less than half of the full value.  When a tenant in common dies, the property passes to the beneficiaries designated in such deceased owner’s estate plan.  As a result, the surviving tenant in common may end up owning the property with a stranger.

Beware of Unintended Tax Consequences

            Those purchasing a home should fully understand the costs associated with the purchase.  However, co-purchasers face the risk of running afoul of tax laws and potentially triggering unintended gift or income tax consequences.  This can be especially true when the financial situation of the co-purchasers differs and they rely on the assets or income of one co-purchaser to pay the majority (or all) of the purchase price or carrying costs of the new home.

Paying for more than your share of the purchase may be a taxable gift.  A co-purchaser who pays (or takes out a mortgage on) more than its half share of the purchase price has made a gift to the other purchaser and may be subject to gift tax.  While the increasing exemption from Federal gift tax and the small number of states which tax gifts makes it less likely that a gift tax must be paid at the time of the purchase, co-purchasers should still be wary of using up gift and estate tax exemption.  To avoid adverse surprises, co-purchasers should discuss the terms of any purchase with their tax advisors before agreeing to any arrangement where each purchaser is not responsible for its share of the purchase price.

Having someone pay your obligations may be taxable income.  A co-purchaser who has its mortgage, maintenance or any other financial obligation paid for by another may be deemed to have received income.  This deemed income must be treated just like salary and investment income, reported on an income tax return and it may be taxable.

Review Your Estate Plan

                        A major life change (such as marriage or divorce, birth or death of a family member, relocation to a different state, or significant change in assets) is a perfect opportunity to begin an estate plan or revisit a pre-existing plan.  Since the purchase of a home is usually one’s largest purchase, prospective purchasers should meet with their trusts and estates attorney well in advance of agreeing to purchase the property to ensure that the purchase furthers their estate planning wishes and to avoid the trouble and expense of correcting the transaction in the future.

By meeting with their trusts and estates attorneys prior to any purchase and considering these issues, co-purchasers may be able to avoid many of the pitfalls that face unsuspecting co-purchasers.


Lawrence D. Mandelker is a trusts and estates attorney with Seyfarth Shaw LLP.  Mr. Mandelker’s practice focuses on trusts and estates law and represents clients in estate planning matters, focusing on asset preservation, the minimization of estate, gift and income taxes and business succession.  In addition, he represents clients in individual as well as fiduciary capacities regarding probate matters, the administration of estates and trusts, and in estate and trust litigation.  He can be reached at [email protected].