Want to Buy a Home With a Friend? Here's How to Prevent Legal Headaches

With rising home prices leading more people to co-buy homes with non-romantic partners, it's essential to have a co-tenancy agreement that clearly defines the deal. Here's what it should include. When you purchase through links on our site, we may earn an affiliate commission. Here’s how it works. Profit and prosper with the best of Kiplinger's advice on investing, taxes, retirement, personal finance and much more. Delivered daily. Enter your email in the box and click Sign Me Up.You are now subscribedYour newsletter sign-up was successfulWant to add more newsletters?Profit and prosper with the best of Kiplinger's advice on investing, taxes, retirement, personal finance and much more delivered daily. 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Rising home prices coupled with the affordability crisis have created a unique need to find alternative solutions for homeownership.Nearly 15% of Americans have co-purchased a home with a person other than their romantic partner, and an additional 48% would consider it, according to a survey by JW Surety Bonds.Co-buyers account for 26.7% of all home purchases, and 53 million people live in co-owned homes.Become a smarter, better informed investor. Subscribe from just $107.88 $24.99, plus get up to 4 Special IssuesProfit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.Profit and prosper with the best of expert advice - straight to your e-mail.Rising home prices and tight markets have resulted in an increased number of unrelated people acquiring residential real estate. These people may include friends, co-workers or business partners. This group also includes unmarried romantic partners.According to the survey, nearly 25% of respondents who bought a home with a non-romantic partner said the purchase would have been unaffordable on their own.About Adviser IntelThe author of this article is a participant in Kiplinger's Adviser Intel program, a curated network of trusted financial professionals who share expert insights on wealth building and preservation. Contributors, including fiduciary financial planners, wealth managers, CEOs and attorneys, provide actionable advice about retirement planning, estate planning, tax strategies and more. Experts are invited to contribute and do not pay to be included, so you can trust their advice is honest and valuable.While co-buying real estate provides an otherwise unavailable opportunity, it also requires additional planning to protect the buyers from associated legal risks.Co-ownership of real property, particularly by individuals outside of their immediate family (spouse/parent/child), should be covered by a co-tenancy agreement. This also applies to vacation homes owned by multiple family groups.The co-tenancy agreement should include, at a minimum, clearly defined ownership percentages, the financial responsibilities of each co-owner, rights of use, the intended use of the property and exit strategies for the property.The title should clearly define each co-tenant's ownership percentage.Co-tenancy without an agreement typically would not grant survivorship rights for the surviving co-owner to own the entire property. At death, a co-tenant's interest would pass to the deceased co-tenant's heirs or beneficiaries.To ensure the survivorship rights of each co-owner, the intent should be reflected on the title and in the joint tenancy agreement.Here's a closer look at what you should ensure is included in your co-tenancy agreement:Each co-owner's share of rental or other income should be detailed, as well as each co-owner's responsibility to pay the mortgage, insurance, utilities, maintenance, capital improvements and property taxes.Consideration should be given as to what the legal result is if either co-owner fails to satisfy their share of those costs.The agreement should detail who, if anyone, beyond the co-owners may live in or otherwise use the property.Procedures to identify or select tenants, rental or subletting rights and any restrictions must be clearly identified to prevent disputes later.The co-owners should define how repairs, renovations and major decisions will be made. If the ownership is 50/50 or an even split such that a deadlock might be possible, a tiebreaker, such as a professional on whom both parties agree, should be identified to help prevent formal litigation.The agreement should allocate liability between the co-owners as well as identify hold-harmless provisions, lawsuits, creditor claims and other legal responsibilities. The agreement may not protect either co-owner from third-party claims.However, such an agreement may provide a basis to allocate liability between co-owners and a contractual right to indemnification. These provisions should be clearly stated.Looking for expert tips to grow and preserve your wealth? Sign up for Adviser Intel, our free, twice-weekly newsletter.Consideration should be given to mandatory prelitigation steps that may be required to prevent formal litigation, such as mediation.The agreement should address situations where one co-owner wants out of the relationship. Buyout or right-of-first-refusal provisions are common.The agreement should detail how the interest of the exiting partner will be valued and whether valuation discounts are appropriate.The agreement should detail how the property will be managed and decisions made in the event of the death or incapacity of either co-owner. This may create a need for estate planning with a limited liability company (LLC) for ownership.An LLC can help ensure that management continues despite the death or incapacity of either co-owner. An LLC may provide greater asset protection for the co-owners.Attention to a durable power of attorney and a trust can avoid formal probate or court filings in the event of the death or incapacity of either co-owner.If an LLC is used, the operating agreement should cover the terms described above for co-tenancy agreements to prevent disputes.Alternatively, a revocable trust may also be appropriate to avoid probate filings upon the death of either co-owner.This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.Profit and prosper with the best of Kiplinger's advice on investing, taxes, retirement, personal finance and much more. Delivered daily. Enter your email in the box and click Sign Me Up.John M. Goralka is Senior Counsel at CunninghamLegal in Sacramento, California. John joined CunninghamLegal because of the firm's high degree of professionalism, commitment to client service and creative ability to provide solutions. For decades, John has helped thousands of families and business owners protect, preserve and pass on their wealth with confidence.

Through The Goralka Law Firm, founded in 1996, Mr. Goralka and his team built a reputation for designing practical, tax-efficient estate plans that truly worked when families needed them most. He is one of the few attorneys in California who is dual-certified as a Specialist in both Taxation Law and Estate Planning, Trust & Probate Law by the State Bar of California Board of Legal Specialization. If you're worried about your retirement, address the concerns in a logical sequence, talk honestly with your team and prepare to go boldly into the future. AI can be a powerful specialist, but it can sound smarter than it is when it comes to understanding real-world stakes. That means you have to be the strategist. Rounding Tax A new era of "Swedish rounding" hits U.S. registers soon. Learn why the nickel may be on the chopping block, and how to save money by choosing the right way to pay. If you're worried about your retirement, address the concerns in a logical sequence, talk honestly with your team and prepare to go boldly into the future. AI can be a powerful specialist, but it can sound smarter than it is when it comes to understanding real-world stakes. That means you have to be the strategist. Charitable bunching with a donor-advised fund (DAF) can maximize both the tax benefits and the long-term sustainability of your philanthropic ventures. When financial anxiety keeps you awake, money isn't usually the root cause of the problem. Identifying the real demons will help you sleep — and live — better. If you're overwhelmed by financial planning, a long list of to-dos won't help. Find clarity by focusing on steps built around what's most important to you. Selling a major asset can result in huge capital gains taxes, but combining direct indexing with tax-loss harvesting can significantly reduce your tax bill. It's been a while since investors had to stray beyond U.S. stocks to reap rewards. But current risks and opportunities suggest it's time to look abroad again. Market participants had plenty of news to sift through on Friday, including updates on inflation and economic growth and a key court ruling.