This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
Stocks Under $10 with 50-100% upside potential - 14 days FREE!

Who Owns the House After the Lover's Moved In

NEW YORK (TheStreet) -- After happily dating you've decided to move in with your significant other. Congratulations!

Now it's time to address a headache-inducing issue: If you start chipping in on the mortgage payment, how would the two of you divvy up the home equity if you were to part ways? Or suppose one of you was run over by a bus. How would the equity be apportioned between the survivor and the other partner's heirs?

The two of you can agree on anything you want, of course, but you could set up a system that would also make sense to anyone else with a stake in your estates, such as children from previous relationships. Here's how.

First of all, the home's initial owner -- let's call her Jane -- would have sole right to the equity built up before party No. 2 -- John -- starts chipping in.  If Jane paid $200,000 for the home 10 years ago and it's now worth $250,000, that $50,000 in additional equity is hers. So get the current value appraised, or agree on a number after checking values on sites such as Zillow.

Jane is also entitled to get back her down payment. Let's say that was $20,000. So the first $70,000 from a sale goes to Jane.

She also has a right to the equity created by paying down her mortgage balance before John came along. If she started with a $180,000 15-year loan five years ago at 6%, she'd now owe about $137,000. So that's another $43,000 in equity that belongs to Jane, bringing the total to $113,000.

The lender will know the loan balance, which will also be on the annual statement that should have come in January. For a month-by-month balance, fill out the Mortgage Loan Calculator, check the circle marked "Report Amortization Schedule by Month" and click "View Report." The popup will show how much of every month's payment goes to principal and interest and how much debt remains at the end of each month.

OK, now John starts pitching in. Let's assume he pays half the monthly payment of $1,519. The amortization schedule will show how much equity he buys each month with the principal portion of his payment. If he starts at month 61, the payment will include $835 for principal and $684 for interest. So if John makes half the payment, he gets $417.50 in equity -- half the principal portion.

The interest portion of his payment doesn't count. In effect, John has taken on responsibility for paying off half of the remaining debt, and he pays interest rather than having to pay the whole amount at once.

Every month John makes a payment he and Jane can refer to the amortization schedule to see the additional equity each has built. The same approach could be used if, say, John paid only a third of the mortgage; he'd get a third of the equity acquired each month.

The final step is figuring how to divide any new equity created by growth in the home's value after John comes on board.

Jane's equity up to this point has already been figured, based on her down payment, the home's appreciation and the payments she made on her own. Equity acquired after John arrives could be divided according to the shares of future mortgage payments. If John pays half he'd be entitled to half of the new equity acquired during the time he kicked in.

In other words, if the home, valued at $250,000 when John moved in, sold a few years later for $300,000, John would be entitled to half the $50,000 because he'd shouldered half the payments during those years.

Jane, of course, might feel that since she had more money tied up in the house when John arrived she should get a bigger share of the future gain in the home's value. On the other hand, she did profit from this investment through the home's appreciation before John joined in. It's a debatable point, one that should be ironed out before the arrangement begins.

Note that these calculations don't account for the escrow payments for homeowners insurance and property taxes. Those have nothing to do with the equity in the home. They are like the water, electric and food bills, to be divided any way the couple wants.

Any expense that's not evenly shared can become a bone of contention if the couple has a falling out. So whatever you settle on, best get a lawyer to make it official.

Select the service that is right for you!

COMPARE ALL SERVICES
Action Alerts PLUS
Try it NOW

Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
  • Weekly roundups
TheStreet Quant Ratings
Try it NOW
Only $49.95/yr

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
  • Upgrade/downgrade alerts
Stocks Under $10
Try it NOW

David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
  • Weekly roundups
Dividend Stock Advisor
Try it NOW

Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Alerts when market news affect the portfolio
  • Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
Real Money Pro
Try it NOW

All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.

Product Features:
  • Real Money + Doug Kass Plus 15 more Wall Street Pros
  • Intraday commentary & news
  • Ultra-actionable trading ideas
Options Profits
Try it NOW

Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • 100+ monthly options trading ideas
  • Actionable options commentary & news
  • Real-time trading community
  • Options TV
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!
DOW 17,098.45 +18.88 0.11%
S&P 500 2,003.37 +6.63 0.33%
NASDAQ 4,580.2710 +22.5760 0.50%

Brokerage Partners

Rates from Bankrate.com

  • Mortgage
  • Credit Cards
  • Auto

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs