What are the implications of buying a home together?
Buying as a couple is great, but only if each person’s interests can be protected! While the risks are limited for a married couple, what about if the couple are in a civil partnership or cohabiting? myLIFE is here to tell you more.
Having rented an apartment for two years, Élodie and Marco are ready to take the next step. They want to buy a home together. But how does it work buying property jointly? What precautions should they take to prevent their dream turning into a nightmare?
So you’re ready to buy a home together, but what exactly do you want to buy?
To begin with, our couple will need to agree on what they want to buy. They have to ask themselves the right questions and establish the kind of property they are looking for, taking both their wishes into account: house or apartment, town or country, old or modern, work needed or not, two or three bedrooms, etc. Before they even start looking, Élodie and Marco need to find some common ground, even if it means making compromises and concessions.
They should also agree on a budget and how they are going to fund their purchase: What down payment can they afford? Will they each put in the same amount? Will they both be named owners? It is essential to discuss all these aspects before going to the bank.
Banks look favourably on couples buying together
In most cases, banks are reassured by a couple buying together because they tend to have a greater financing capacity, the down payment is higher and the risk is spread. A banker may therefore offer more favourable borrowing terms, particularly if they can offer additional services to help the young couple with their future plans.
Nevertheless, Élodie and Marco should also remember to take into account how their legal status as a couple will affect their purchase.
The couple’s legal status has a direct impact not only on the purchase of the property, but also on what happens to the asset should they separate or one of them dies.
Élodie and Marco are not married; they merely live together. This will by no means stop them from buying a property together, but they will need to be particularly careful to protect their respective interests. With good reason: the couple’s legal status has a direct impact not only on the purchase of the property, but also on what happens to the asset should they separate or one of them dies.
A married couple
There are three matrimonial regimes that directly affect ownership of the asset.
- Equal division of property
This is the default regime if no prenuptial agreement has been signed. The personal assets of each spouse (assets acquired before the marriage, inherited or received as a gift, and personal property) are kept separate from their communal assets (employment income, fruits and revenues from own assets, purchases).
- If a property is purchased during the marriage, ownership of the asset is split equally between the spouses. Even if one of them puts more money into the purchase, the property is deemed to be shared. It belongs to the spouses equally. To prevent disputes in the event of separation, it is possible to include a clause d’emploi or clause de remploi in the purchase deed, specifying the origin of the sums invested.
- If, however, the property was purchased by one of the spouses prior to marriage, it is considered as an own asset. The buyer is the sole owner.
- The communal estate will be split between the two spouses in the case of divorce, and if one of them should die, the deceased’s share will be divided among their heirs.
- The separate ownership regime
Under this regime, in theory, there are no shared assets. All assets belong to one or other of the spouses. Nevertheless, the couple can still buy a property together.
- The property purchase is carried out jointly, i.e. the two spouses own the asset to the extent of their own financial contribution: 50/50, 40/60, 30/70, etc. The exact split of the financing and each person’s contribution must be included in the deed of purchase.
- Divorce or death: jointly purchased assets will be split 50/50 between the spouses or between the heirs in the event of death. According to Article 1538 of the Luxembourg Civil Code: “Assets over which neither spouse can claim sole ownership are deemed to belong to them jointly, with each party owning half.” That is why it is important to include each person’s contribution in the deed so that there is no room for confusion in the event of divorce.
Bear in mind that according to the law, “nothing can be forced to remain under joint ownership”. Consequently, in the event of separation, either the partners split the proceeds from the sale in accordance with their respective contributions or one spouse buys the other out. In the event of a dispute, the matter will be settled in court.
- Fully shared property
Under this regime, there are no own assets or debts; it is the opposite of the separate ownership regime. All the couple’s assets are shared, whether they were purchased before or during the marriage. Even debts taken on before the marriage (e.g. a property loan) by one of the spouses are joint commitments.
- This means that a property purchase is owned 50/50 by the two spouses, even if only one of them financed it.
- In the event of divorce, all the assets will be divided equally between the spouses. The spouses may stipulate that, should one of them die, the surviving partner will be awarded the remaining share.
A couple in a civil partnership or legally cohabiting
When a couple enters into a formal partnership, everything purchased before or during the partnership remains the property of each partner, provided they can provide proof of ownership. If they are unable to do so, the asset is deemed to be jointly owned.
- In this situation, the communal property purchase can be made jointly, as in the case of a marriage under the separate ownership regime.
- In the event of separation, if the deed of purchase specified the financing split, the partners can get back their share based on their respective ownership.
- On the contrary, unlike what happens in a marriage, in the absence of a will, the partner is not considered to be an heir in the event of the other partner’s death. It is therefore worth thinking about including your partner in your will (there is no inheritance tax to pay if the partnership is over three years old) or drawing up a joint ownership agreement that includes a right of first refusal clause. If the assets are jointly owned following an agreement between the partners, the surviving partner will then own the assets jointly with the legal heirs.
A couple living together
The members of a couple simply living together, such as Élodie and Marco, can buy a property together provided they take certain precautions.
- Buying jointly
Élodie and Marco will become owners to the extent of their respective contributions, just like for a partnership.
- If the couple separates, each party can get back their share based on their respective ownership (if the financing split was specified on the deed of purchase; otherwise, the asset is deemed to have been purchased 50/50).
- In the event of death, the surviving party has no claim to the inheritance and will jointly own the property asset with the heirs of the deceased party. That is why a will (there will be inheritance tax to pay for the surviving person) or an agreement with a right of first refusal clause would be needed.
- Setting up an SCI (Société Civile Immobilière)
In this case, the company (SCI) owns the property asset. The members of the couple become partners and shareholders to the extent of their contribution.
- An SCI requires extra administrative work (drafting a deed of incorporation, accountancy, organising shareholders’ meetings, etc.), but it also enables specific clauses to be added to facilitate, for example, the withdrawal of a partner or one partner buying the other out.
- Moreover, in the event of death, the shares of the deceased person can be transferred to the surviving person, subject to certain conditions. Although an SCI has a contractual nature and is in theory dissolved upon the death of one of the contracting parties, it can be stipulated that, in the event of the death of one of the partners, the company continues with the heir or between the surviving partners.
To conclude, our young couple should not hesitate to consult a notary on their home-buying plans. The notary will be able to guide them towards the best option given their circumstances and draw their attention to the various legal and tax-related issues they will need to consider. Support from a bank is also recommended in order to ensure that the financing of the asset is properly managed.