Some couples these days buy a property together before they have even lived together, full of hopes, dreams and an assumption that they will always be together. The last thing on the minds of most couples is, ‘what would happen if we break up?’ But it’s actually quite surprising that more couples don’t pay any attention whatsoever to how the mortgage will be structured or how the asset will be divided if they separate.
Let’s briefly look at the law surrounding property ownership.
When buying a property in Australia with your partner you enter into one of two types of agreement:
- A Joint Tenancy, or
- A Tenancy in Common.
These agreements are legally binding but have very different rules applied to them.
The most common agreement entered into by couples is the Joint Tenancy. In a Joint Tenancy, each party owns equal parts of the property, regardless of who contributes the most to the mortgage.
For example, in a Joint Tenancy, one partner may earn more than the other, which is quite common, and therefore contribute more to the mortgage payments. However this does not mean they own a greater percentage of the asset. Furthermore, if one party dies, the other has the right of ownership, however they also incur the full debt.
So Joint Tenancy is about equality, with lenders essentially treating the couple as one party.
Tenancy in Common
When couples enter into a Tenancy in Common, ownership is not necessarily split equally. Instead, it is determined by the financial contribution of each person.
For instance, if one partner contributes $300,000 to a $400,000 mortgage, they are entitled to 75% of the asset, while their partner holds the remaining 25%.
If two people separate with a Tenancy in Common, each party maintains their share of the property and can sell their portion at any point. Furthermore, if one person dies, their share is delegated in accordance with their Will rather than automatically going to the other party.
Any mortgage taken out under a Tenancy in Common is generally the shared responsibility between both parties.
For both frameworks, a co-ownership agreement must be made which dictates how rights and responsibilities of the property are divided.
If you are unsure which agreement applies to you and your spouse/partner, you can easily found out by obtaining a copy of your title transfer document or land registration document, which will specify the type of tenancy that applies.
As you can see, it is worth thinking seriously about the form of tenancy agreement that will work best for you and your partner before purchasing a property together.