Mind Your Marriage and Your Mortgage
When it comes to buying a home, married couples have all the advantages. With marriage being an option for more people now, see how it can change a mortgage.
While more and more straight couples are opting to live together without a marriage license, recent Supreme Court decisions have enabled LGBT couples to tie the knot, and increasing numbers are doing just that.
Despite all the jokes about how everyone should have the equal right to suffer matrimonial misery, there are actually many legal and financial advantages to buying a home as a married couple, regardless of gender.
Those who have entered into a federally recognized marriage avoid all sorts of complications. “For married couples, it’s easier to buy, sell, qualify for a mortgage, handle taxes, and manage death and divorce,” says Accredited Domestic Partnership Advisor Steve Branton of Mosaic Financial Partners. This is just one of many reasons the right to legal marriage has been so important to the LGBT community.
No matter whom you marry, if you bought property with your partner before you officially walked down the aisle, it’s a good idea to revisit the title on your mortgage, Branton cautions.
For example, David and Anne are a committed couple with no desire to go through the whole wedding experience. They bought a house together, and their mortgage reads as a Joint Tenants with Rights of Survivorship (JTWROS). Many unmarried couples like this because it’s simple: both partners have equal ownership, and when one partner dies, his or her share goes to the surviving owner. Also, it helps avoid probate.
One of several drawbacks to JTWROS would arise if David and Anne split up. Thanks to the 1978 Proposition 13, property taxes in California are based on the value of a home when it is originally purchased. Since property tax is only revalued when the title is transferred, this means that a change in ownership can trigger a reassessment and cause a big jump in property taxes.
Another option for unmarried couples is TIC ownership, which is split between the parties, often according to the portion of money invested by each. But two disadvantages of TIC ownership are, first, that each partner’s portion passes to their heirs at death, not necessarily by default to the other owner (as in the case of JTWROS discussed above), and second, that it does not avoid probate.
David and Anne wouldn’t qualify for Community Property with Rights of Survivorship (CPWROS), because this is only reserved for married straight couples and couples legally registered as “Domestic Partners.” Domestic Partnership is a title that can only be obtained by same-sex couples or straight couples where one partner is older than 62 and qualifies for Social Security retirement benefits in the State of California.
“Why the age limit?” you may ask. Let's say, for example a woman older than 62 is eligible for her previous husband's retirement benefits and doesn't want to lose them by getting remarried. Domestic Partnership status can protect those benefits for her. Curious the way the law works, isn't it?
Accredited Domestic Partnership Advisor Steve Branton of Mosaic Financial Partners advises couples on the different ways they can title their mortgages, and suggests putting mutually held properties in trusts, for myriad reasons.
Married couples avoid most of these negative eventualities, but whether you’re taking out a mortgage as an officially married couple, domestic partners or unmarried partners, you’ll “want to make sure your property ownership is coordinated with other elements of a strong estate plan including wills and, if you’re married, ideally, a revocable living trust,” says Branton.
“It’s a good idea to plan for the exit, as unromantic as that may sound,” advises Branton. “The fact is that more than 50 percent of the marriages in California don’t work out.”
If you’re planning on changing your marital status one way or the other, you’ll want to revisit your mortgage title with an expert — preferably an attorney who can help you select the right titling for your particular circumstances.