Premarital Purchase of Real Estate – Pitfalls and Solutions
Thinking about purchasing a house with your significant other? If you are not married, you should consult with an attorney before making that commitment. Many people assume that if they purchase a home with their boyfriend or girlfriend, and the relationship later breaks down, the law will protect any financial interest that they have in the home. But whether or not the couple ends up getting married before the relationship ultimately ends, the legal outcome after a premarital purchase of real estate may not match up with their expectations about how the equity in the home will end up being divided.
There are several different questions that arise when a couple owns a home together that they purchased when they were not married and end up arguing about how to dispose of or divide the property. First, how is the real estate titled? Second, who contributed the money for the down payment? And who paid the expenses related to the home while the couple lived there? Many legal theories can be applied, but even if the couple ended up getting married, the house would not be considered marital property that is subject to equitable distribution in family court, unless the house was retitled after marriage as tenants by the entireties. In other words, the laws that were developed to protect each spouses’ financial interests in the event of divorce, with the goal of producing a fair outcome for both parties, do not apply to unmarried purchasers of real estate.
In two recent Pennsylvania Superior Court cases, Vacula v. Chapman and McGoldrick v. Murphy, the uncertainty in outcomes was sharply highlighted. In Vacula, Ms. Vacula and Mr. Chapman orally agreed to purchase a home together. Although they agreed to own the home together, they decided that only Mr. Chapman would be on the deed. Ms. Vacula contributed a sum of money towards purchase costs and the down payment, both parties appeared at settlement for the purchase of the home, and then they both moved into the new home along with Ms. Vacula’s children. While living together, they had an informal agreement regarding who would pay which expenses at the home. But after just a few months of living together, they began to have problems in their relationship. Ultimately, Mr. Chapman filed a landlord-tenant complaint against Ms. Vacula that resulted in her eviction. On appeal, the Superior Court noted that oral agreements regarding real estate that were in fact made can be enforced, including for the recovery of monetary damages. Specifically, “[r]ecovery of monetary damages for nonperformance of an agreement to create or transfer an interest in land is available, ‘the measure of such damages being the money that was paid on account of the purchase and the expenses incurred on the faith of the contract.’” Therefore, the court recognized that Ms. Vacula had an interest in some portion of the home’s equity.
In contrast, in McGoldrick, Ms. Murphy and Mr. McGoldrick were in a romantic relationship and had been living together in Mr. McGoldrick’s home for several years. They decided to get married and to purchase a home together, but as a result of financial constraints, Mr. McGoldrick had to wait to buy an engagement ring for Ms. Murphy. When the parties purchased a home together, they both executed the mortgage, and Mr. McGoldrick provided the funds for the deposit, down payment and closing costs. The mortgage company required the parties to execute two gift letters specifically indicating that the payments made by Mr. McGoldrick came from his accounts, were not loans, and were given to Ms. Murphy as his “fiancé” without any expectation of being repaid.
The home was titled in their names as joint tenants with rights of survivorship and after moving in, they began jointly sharing the expenses for the home. Shortly thereafter, Mr. McGoldrick gave Ms. Murphy an engagement ring. But a year later, Ms. Murphy ended the engagement. Although Mr. McGoldrick continued to reside in the home, he stopped paying his share of the expenses. The Superior Court noted that Mr. McGoldrick put the money towards the house because they both intended it to become their marital residence, and the money was therefore a gift conditioned upon their anticipated marriage. In addition, because gifts by definition are given without expectation of being paid back, the fact that Mr. McGoldrick signed the gift letter stating that the money was not a loan to be repaid was irrelevant. Thus, the Superior Court ultimately held that Mr. Goldrick was entitled to receive all of the net proceeds from the sale of the property as partial reimbursement for the money he had put towards the home, even though Ms. Murphy had paid all of the expenses at the home for a period of time after their engagement entered.
These cases illustrate the importance of having written agreements regarding the purchase of real estate by unmarried individuals, including how their living expenses will be shared, who will get to stay in the house if they separate, and how the proceeds will be divided in the event of sale, regardless of whether the parties intend to get married in the future or not. Such an agreement can take the form of a cohabitation agreement if there is no intention to marry in the near future, or the form of a premarital agreement if there is an anticipated marriage.
Contact Vetrano | Vetrano & Feinman for Guidance on Premarital Purchase of Real Estate and Other Family Law Issues
The family law attorneys at Vetrano | Vetrano & Feinman LLC are well-versed in drafting premarital agreements and cohabitation agreements and can help you formulate an agreement that reflects both parties’ expectations so that uncertainty and conflict can be avoided. Contact the firm for a consultation.
Ms. Childs recently authored a Case Note regarding this topic, “Comparing Vacula and McGoldrick – How Contributions to the Purchase of Real Estate Should be Handled in the Absence of Marriage”, which was published in the Pennsylvania Bar Association’s Pennsylvania Family Lawyer, Volume 42, Issue No. 2, Summer 2020. She is currently serving as the secretary of the Montgomery Bar Association’s Family Law Section and as the President of the Doris Jonas Freed American Inn of Court, which focuses on matrimonial law. She has limited her practice to family law since joining Vetrano | Vetrano & Feinman LLC in 2011.
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