Buying? Not Married? Have You Considered Your Options for Real Estate Ownership and What Happens if You Break Up?

Purchasing a home is a significant financial investment, introducing unique legal considerations for unmarried couples. According to the National Association of Realtors’ 2024 Profile of Home Buyers and Sellers, unmarried couples accounted for 6% of all homebuyers, with 12% of first-time buyers in this category. When unmarried couples decide to purchase real estate together, addressing potential legal challenges ahead of time is crucial. Determining the ownership structure and how to hold title is essential (e.g., joint tenancy, tenancy in common, sole ownership). Unmarried couples should be aware that lenders assess each individual’s creditworthiness separately, and one partner’s lower credit score may affect loan terms or approval. Additionally, unmarried couples may face different tax scenarios than married couples; for example, one person may miss out on equity if only one person’s name is on the mortgage and title, but they decide to buy the house together.  

In the unfortunate event the relationship ends, costly disputes can arise without a legally binding agreement. Potential issues include disagreements over ownership shares, entitlement to equity, and certain other costs a party may have incurred when the parties were cohabiting and one party refused to sell or vacate the property. To mitigate these risks, legal professionals recommend drafting a cohabitation agreement. Such an agreement can outline each party’s financial contributions and responsibilities as well as specify what happens in the event of a breakup. In case of a breakup, the agreement can also establish the procedures for selling or dividing the property.

Addressing these considerations at the outset proactively protects individual financial interests and alleviates legal challenges should the relationship change.

Understanding Property Ownership in North Carolina

Unmarried cohabitation is not recognized as a legal status for unmarried couples in North Carolina. There are two primary forms of joint ownership in North Carolina:

• Joint Tenancy
• Tenants in Common

Joint Tenancy allows both parties to have equal ownership rights in the property. If one partner dies, the surviving partner will inherit the deceased partner’s shares in the property. Dividing property under joint tenancy for unmarried couples who break up can be complicated. If an unmarried couple breaks up, joint tenancy allows both parties to access the equity in the home when the home sells. Additionally, a cohabitation property agreement can, and should, provide guidance when dividing up property under a joint tenancy.

Buying property as Tenants in Common allows parties to decide how they want to divide their share. If one partner dies, the surviving partner will not inherit the deceased’s share of the property. Instead, the deceased owner’s share becomes part of their estate, and their will or the state’s laws will determine how to divide the deceased’s shares.

A third tenancy is a Joint Tenancy with the Right of Survivorship—this means that if one of the parties dies, the surviving party becomes the sole owner.

The Legal Perspective: What Happens When a Couple Breaks Up?

After a breakup, unmarried couples have various legal options when dealing with dividing real estate:

• Constructive trusts: If one partner holds legal title to the property but both parties have contributed to it financially or through labor, then the court may impose a constructive trust. North Carolina courts may recognize this type of trust and treat the titleholder as a trustee for the other partner, therefore avoiding unjust enrichment.
• Partition actions: North Carolina law supports partition actions, which allow unmarried co-owners of property to request the court to order the division or sale of the property.
• Mediation and Arbitration: Both mediation and arbitration are effective alternatives to litigation. Both processes involve a third party who assists the parties in reaching a mutually agreeable solution without court intervention.

Protecting Your Interests Before Buying Property Together

Cohabitation agreements are a great way to help unmarried couples avoid future conflict. A cohabitation agreement is a legally binding contract that outlines the rights and responsibilities of each partner during and after the relationship. The agreement can specify provisions for financial support, responsibility for debts and financial obligations, and division of property and assets acquired during the relationship.

Property ownership and title agreements also help unmarried couples establish the type of ownership (e.g., joint ownership) of the property and create specific shares or a title agreement, which can help prevent future conflicts.

Documenting the contributions to the property purchase and maintenance by creating a written agreement or keeping track of bank statements can help in future legal proceedings by outlining a record of all payments related to the property. These detailed records help clarify each partner’s financial responsibilities and can prevent disputes over who owes what.  

Negotiating and drafting a cohabitation agreement can help unmarried couples proactively protect their interests and minimize future conflicts. By consulting legal counsel, each partner can ensure that the agreement is fair and both parties are adequately represented. During negotiations, it is essential to initiate open and honest discussions while addressing topics such as property ownership, debt responsibilities, and potential future changes in the relationship.

Legal Challenges in Property Disputes: Partition Actions

Under North Carolina law, co-owners of real property can ask the court to divide their land in one of two ways – either by actually dividing the land itself (a partition in kind) or by selling the land and dividing the proceeds (partition by sale). In North Carolina, each co-owner has the right to request partition from the court. During a partition by sale, both parties present evidence to the court showing contributions (e.g., payment of property taxes, material improvements), and the court may adjust each party’s share of the sale proceeds for any documented carrying costs.

If one party wants to keep the property and the other wants out, a partition by sale can level the playing field by ensuring that proceeds are distributed equitably and the property is sold at fair market value. For unmarried couples, it is crucial to maintain clear documentation of financial contributions to the property, seek legal advice from an attorney experienced in real property law, and consider alternative dispute resolutions to reach an amicable agreement without resorting to partition actions, if possible.

Resolving Property Disputes Without Going to Court

Unmarried couples can utilize alternative dispute resolution (ADR) methods such as mediation, arbitration, and negotiation to resolve property disputes without going through formal court action. Through mediation, a neutral third party facilitates communication between the parties to help you reach a mutually agreeable solution. Many private and community-based mediation services are available throughout North Carolina.

Negotiation allows for a less structured means for both parties to creatively find solutions that would satisfy them both. Negotiation empowers individual parties to control the outcome by engaging in discussions to reach a settlement.

On the other hand, arbitration is a more formal process where a neutral arbitrator hears evidence and arguments from both parties before making a binding decision. It is less formal than litigation and is commonly used in commercial and contractual disputes.

Both parties should establish clear objectives by defining their goals and priorities while also determining what they are willing to compromise on. Engaging in active listening can reduce misunderstandings and pave the way for a more collaborative problem-solving approach. Lastly, neutral third parties are a great way to reach a fair settlement when tensions are high. A neutral mediator can help facilitate these discussions and provide an unbiased perspective. The North Carolina Dispute Resolution Commission provides resources and a directory for certified mediators.

When to Seek Legal Advice

If you are uncertain about ownership shares, there are disparities in financial stability between partners, and there is no cohabitation agreement, it is crucial that you consider seeking legal advice. Consulting an attorney experienced in cohabitation agreements can help you navigate the complexities of both parties’ rights and interests. Legal documentation can also help ensure both parties’ contributions are recognized and protected. Lastly, legal advice can help unmarried couples with different financial standings better structure their property purchase to accurately reflect each individual’s financial input and responsibilities.