By: Brian D. Hommel, Partner
Galloway & Hommel, LLP
Buying a home is often one of the most significant decisions a person can make. There is an inherent lure of real estate, whether it be a new condo to call home in Royal Oak, a home in West Bloomfield Township with a yard for a growing family, generating income as an investment rental property in Rochester, or anything in between. The outlay of money, time, and work can be great, but the return is often well worth the investment.
Market conditions, mortgage rates, and the like, often limit an individual’s ability to purchase real estate on their own, and it is common for couples, family, or friends to purchase property as co-owners. Investing with another person can be very advantageous, but what happens if that relationship breaks down? [i] The decision to purchase real estate is a significant investment and commitment, therefore learning about possible issues and planning to deal with the “What If?” should be automatic.
COHABITATION IN MICHIGAN WILL NOT CREATE A COMMON LAW MARRIAGE
Michigan courts have noted that Michigan public policy tends to support marriage.[ii] While some couples live together, buy a pet, start a family, split expenses, and build a life together without a marriage license, under Michigan law, they are not legally married.[iii]
Being legally married provides many benefits, and while it may seem counterintuitive, one of those benefits is divorce. If a married couple buys property together and their marriage ends, divorce is the instrument that can be employed to resolve issues related to real and personal property.
What process is in place to help unmarried couples resolve real and personal property issues when they end their relationship? If a couple has not planned for the worst-case scenario and does not have an agreement in place, in many instances the simple answer is there is no set process. Unmarried couples going through a breakup must, on their own, reach an agreement on what to do with jointly owned property. While some breakups are amicable and respectful, more often than not, the situation is contentious and hostile, making it extremely difficult to get ex-partners to agree. Without an agreement in place between the co-owners there is often no predictable path to a judicial resolution. Given the inherently emotional response to the break-up of a committed couple, irrational behavior is not uncommon and frequently few approaches exist to create leverage in those situations.
WHAT PROACTIVE STEPS CAN I TAKE TO PROTECT MY
OWNERSHIP INTEREST AND INVESTMENT?
- WAIT UNTIL MARRIAGE
As noted above, the protections and legal processes given to a married couple are significant compared to an unmarried couple. If you expect to marry the person you plan to purchase a home with, waiting until you are legally married may be the best option for you.
If you cannot wait for marriage to purchase a property, you may want to consider (1) purchasing the property as one owner and adding your spouse to the title and the mortgage (if any) after marriage, or (2) enter into a cohabitation agreement with all co-owners, to clearly establish expectations, contributions, process for enforcement, and a process for ending the co-ownership if needed. Cohabitation agreements are described in greater detail below.
- UNDERSTAND THE DIFFERENT TYPES OF JOINT OWNERSHIP AND DIRECT HOW YOU WANT TO HOLD TITLE TO YOUR PROPERTY
In Michigan, there are different ways that co-owners can hold title to real property (e.g. Tenancy in Common, Joint Tenancy, Joint Tenancy with Rights of Survivorship, Tenancy by the Entireties). For the sake of brevity, this article will not explain or compare the differences of each type of ownership. However, it is important that prospective owners understand that the language used on their deed will dictate how title to the property is held, and therefore can impact the rights and remedies available to the co-owners.
How title is held among co-owners will control:
- what happens to an ownership interest upon the death of a co-owner;
- the transferability of an interest in the property; and
- access to the court’s for a partition action or the forced sale of the property. [iv]
Understanding the different ways title for real property can be held in Michigan, plus weighing the co-owners’ situation, goals, and involvement are crucial steps before drafting and executing a deed.
- USE A COHABITATION AGREEMENT
In July 2023, Michigan’s penal code (MCL 750.335) was amended so that it is no longer a criminal misdemeanor for unmarried men and women to “lewdly and lasciviously” live together.[v] Although the prior archaic law was rarely enforced, it often provoked pause and careful analysis while drafting contracts for unmarried cohabitating individuals. Now, with the recent amendment, the use and enforceability of a valid cohabitation agreement should become a more accepted and more widely used tool for co-owners.
What is a cohabitation agreement? Essentially, a cohabitation agreement is a binding contractual agreement between co-owners to clearly establish who owns what, the process for the co-ownership, enforcement mechanisms and the process for distributing the property should the co-owners’ relationship dissolve. Like other contracts, a cohabitation agreement can be as detailed or basic as its parties would like. Cohabitation agreements generally include:
- The parties;
- Description of the property;
- The contributions made;
- How title is held;
- The term of the agreement;
- Responsibilities for costs/expenses;
- How decisions will be made;
- Restrictions of co-owners;
- When/how the property can be sold;
- Valuation method(s);
- Rights upon death of a co-owner;
- Terminating the cohabitation agreement;
- Dispute resolution.
In the event of a breakup, a cohabitation agreement would be used to enforce the contractual rights of the parties to the agreement. A cohabitation contract is a simple and effective way to predict and control the future if future events come to pass.
CONCLUSION
Nobody starts a relationship with plans of divorce or separation, but life changes. However, at Galloway & Hommel, LLP, it is our job as attorneys and counselors, to have our clients consider the “What if?” If you are contemplating a major financial and life investment, with the risk of significant loss and/or gains, why not be practical, plan, and control what you can?
One of the last thing exes want to do after a breakup is work together and fairly to decide how property should be divided. Unfortunately, if you don’t have an agreement beforehand and if you aren’t married, that is exactly what you may need to do. Before taking the leap with a co-owner, please contact Galloway & Hommel, LLP, for a free initial consultation. A phone call to our firm to plan before you purchase may help avoid added expense and emotional toll on the backend.
[i] While this article focuses on unmarried couples, the information in this article can be applied to other non-marital relationship including family members and friends.
[ii] McCready v Hoffius, 459 Mich. 131, 140; 586 N.W.2d 723 (1998), vacated in part on other grounds 459 Mich. 1235, 593 N.W.2d 545 (1999)
[iii] Michigan will recognize a common law couple that moves to Michigan, if that couple moves from a state that still recognizes common law marriages and the couple complied with the common law laws of the prior state.
[iv] See MCL 600.3301 et seq. and MCR 3.401–.403
[v] In this context “lewdly and lasciviously associates” refers to a sexual meretricious relationship.
