Really need some impartial advice on money row with sister!

[Cornberry]

I am in desperate need of an impartial opinion on a sensitive issue.

My parents gave my sister and I a substantial deposit to buy a flat a few years ago. Since that time I have lived in the flat and my sister has lived elsewhere in rented accommodation and now she lives abroad - she had the option to live in the flat too but chose not to. In that time I have taken care of the flat and obviously I (and later on my husband) have paid all the bills and the mortgage etc. We agreed at the outset that my sister and I should split the proceeds 50-50 when it came time to sell.

Now that is time to sell and looking at the figures I realise that our mortgage has come down £30,000 which obviously I have paid since I have been living here. And when we split the money left over after repaying it my sister will get half which seems fair enough because that is what we agreed. However I realise that to bring down our mortgage by £30,000 I have paid in over 50,000 because of the interest. So now it occurs to me that if we split everything 50-50 my sister will get back 15 K, which is half of the money repaid on the mortgage but I will also get in 15 K having paid in 50. This strikes me as unfair. She hasn’t paid anything at all into the flat, which was the agreement and that’s fine, but it seems to me that she should receive a proportion of the increase in value on the property but I am unsure why after I have paid over 50 K into the mortgage to bring it down 30k that she should get 15,000 of it having paid nothing and I should get in 15,000 of it having paid in 50,000. Does that make sense?

Interestingly, my parents do not agree. One of them thinks my sister should get half as agreed and the other one thinks that the point about the interest is a relevant one. I would dearly like to have some opinions from people who are unbiased because I honestly don’t think it’s possible for any of us to be completely impartial on this. I suggested to my sister that she should indeed receive her half of the increase in value but not the repayments, bearing in mind she has never put a cent, and if we split it with her we will she will get more out of the money we paid in than we will.

One issue seems to be one of “changing the goalposts” and my sister has accused me of going back on our agreement to get more money. But the problem is that I was very clueless going into this and I am certain that we had known the considerations at the outset we would have made a different agreement.

Am I being unreasonable?

fuckwitseverywhere

You missed out rent owed to the sister.

My sister’s name is on the mortgage

So you couldn't have got the mortgage without her either?

I think the rent issue (hers and you not paying her etc) means you need to keep to the 50/50 split with no deductions. I hope the rent realisation will help you see this as fair. I personally would apologise to my sister saying it was all very complicated and you hadn’t thought it all through - this to try to avoid lingering bad feeling. At some point the two of you will need to deal with your parents estate and things could go badly wrong there if there is still mistrust/resentment on either/both sides. YANBU I just think you haven’t thought it all through.

That’s right. Neither of us could have gotten the mortgage without the other.

She's right IMO. If you want to get technical about the interest etc, you owed her rent for her half of the property while you lived in it. Don't mess around.

I am not very finically savvy

And as Judge Judy says, you don't get rewarded for that. What you already have is a pretty good deal (apart from mortgage overpayments, if there were any) You can't expect extra to compensate for your own lack of savvy.

and in the absence of certainty I think it is logical to raise these questions.

It would have been a lot more logical to raise them earlier, preferably at the start. Did you get your own legal or financial advice when this scheme was first put to you?

You've been going along happily with this arrangement for years. You didn't ask for contributions to expenses, you didn't ask your sister to help with managing the flat, you didn't ask your sister to pay you a management fee. You can't decide now that it's unfair and that you want to charge her for it.

Morally it needs to be split 50:50. It's sounds as though legally that's the case too.

If you want to recalculate, then you'd need to retrospectively calculate the market rent for the period you lived there, and pay your sister a lump sum equivalent to half that total amount to cover your renting her half share of the property over the years. Once you've done that, you could then split just split the deposit and the profit as you are proposing.

What you need to understand is that each month, you didn't actually solely pay the mortgage in full, what you actually did was pay your half of the mortgage, and your sister's half in lieu of the rent that you should have been paying her. So you paid non more off the mortgage than she did in real terms.

I think you are a CF who has lived rent free in a house that was half your sister's for many years, and now want to benefit still further, by not giving her a fair share of the property value.

Similar situation in our family. Years ago our elderly parents house had to be sold after DF deceased and DM in nursing home. House was full of clutter and needed a complete refurb, very old fashioned etc. I had POA so got estate agents in and asked for a value if we simply sold it as it was or refurbished it. There was about £30k difference so as DH is a builder we decided do it up. Dsiblings didn't help with the clearing out which took months, washing walls and cleaning (both heavy smokers and mum incontinent by the end). They didn't help with trips to the tip or pick up a paintbrush after the refurb or contribute towards costs of materials new bathroom, kitchen, flooring etc.
I appreciate its different because we didn't live there but it caused so much trouble with one ds when she put her hand out for her third of the sale price and couldn't understand why l said err no, you wouldn't get involved in increasing the value at all so you're getting a third of the sale minus our input.
I think you should at least get back your overpayment before sitting 50/50.

Nope, you stick to the original agreement.

If OP has made all the Mortgage payments and paid all the ownership expenses.... then surely half of that is effectively the sisters income.... so maybe think of your sister and you as landlords... your payments are the rent which you split and have used to cover the costs of joint ownership.... now you are selling you split a profits 50-50.... that might be a less emotional way of thinking about it

I typed a long reply which was lost. I will summarise it. From a financial perspective, it is clear your sister is entitled to half the deposit and half the gain on the property (ie sales price - purchase price).
From your perspective I would expect private residence relief to apply so no capital gains tax. If your sister has never lived there, then the flat is an investment. Where her half of the gain exceeds the personal allowance for CGT (currently 11.7k) then the excess will be subject to tax (18or28% depending on other income.)
The tricky piece is the mortgage vs rent argument.
Is your sister a party to the mortgage? I would expect so if you both bought the flat together. If you have paid off a chunk off capital, I would question whether this would be treated as part of your investment in the property. For example you each have a 10k deposit and there is 180k mortgage. (200k flat). You pay a one off sum of 10k off the mortgage. The flat goes from being 50% owned by each party to 47.5% to your sister and 52.5% to you. It doesn't make a huge difference in the profit share at the end. I would also question the legals on this.
However, where you have not been paying rent to your sister, this would need to be factored in to give an equitable answer.
You can see how complex and messy this gets. Unless it's going to give you a completely unreasonable answer, I would split 50:50. Without knowing the minutiae of the mortgage and legals with regards to the capital point, I would expect that any payment you made may have to be treated as if made in proportions of the flat ownership anyway.
If you are the sole mortgage holder, your sister's investment percentage in the property is restricted to her deposit only - so again 20k deposit 10 each and you hold the 180k mortgage - then your sister has 5% only. But remember you should have paid rent.
I've gone through all the above but is it really worth it? Will this damage your relationship with your sister and parents forever? Is there really a huge amount at stake or are you talking 5k after the missing rent has been factored in. You also need legal advice to clarify the actual position and what the deeds say etc.

Was her name on the mortgage?
You should have made solicitor aware and mark the proportions you were paying and borrowing at the outset, this could have been written in.
I think you should honour your agreement, or work out a figure which takes into account everyone's expenses and costs for housing, and what they have gained or lost. Include repairs, maintainance, reasonable improvements to property.
Seek legal advice to see what is reasonable (say if it were divorce)

If you are determined to pursue this at a cost to your relationships, then you need to be very factual about it.

Therefore you BOTH need to add up all the expenses associated with living costs over the period you have owned the flat.

You need to document mortgage overpayments, maintenance costs, etc. You can also claim a reasonable 'fee' for your time e.g. letting agents might charge 15% of a rental income for managing a property for an absent LL, so you might charge your sister 7.5% for her 'share' of your labour.

You sister needs to document what rent she has paid in the past etc.

The best thing to do would be to stick to your agreement of 50-50 and be gracious, and hope your sister is gracious too and appreciates your time and effort in selling. Doesn't sound like there's loads of love lost, though, tbh.

OP the fact that your sisters name is on the mortgage just makes it even clearer that this was always intended to be a 50/50 split.

You could have paid her rent and she could have used that money to pay her 50% or the mortgage.

But instead,you agreed to pay directly to the mortgage company rather than the money going via your sister, on the understanding that the house would be split 50/50 on sale.

What you are now saying is that from the 50% of your sisters contribution to the mortgage (which you have paid direct to the mortgage co instead of paying via your sister), you would like all the money related to interest payments back and your sister is only entitled to the lower proportion of money that actually went on the repayment element.

Also, anyone doing calculations above that show you should get back the mortgage payments are conveniently missing out the fact that your sister should equally get rent payments if you’re going to go down this route.

Plus I suspect your mortgage payments are lower than the market rate rent. If you’d rented out the property, you may well have had money to spare to make overpayments on the mortgage. So the overpayments are a red herring without knowing the exact numbers involved here.

I suppose that we have never considered the flat as a commercial endeavour

I think it is time that you did consider this flat as a commercial endeavour, since now is the time for doing the maths.

Very generously, your parents gave you two sisters deposit money to invest in a flat. Would either of you been able to afford a 100% mortgage? Probably not.

If you’d rented it out, you would each have taken 50% of the rent as joint landlords, minus whatever repairs and maintenance costs any property would incur. You would have set the rent to cover these extra costs and a bit more to pay off the mortgage, with any luck.

Have you calculated what a fair market rent would have been for your flat OP?

Instead of renting it out on a 50/50 basis, you decided to live there. You paid the mortgage. The mortgage was calculated on a sum that was £50k less than it would have been, so your monthly payment was considerably reduced and much more affordable for you.

Meanwhile your sister was paying rent to another landlord, who presumably was also covering their maintenance costs and a bit extra for profit/paying back a mortgage, whilst watching their property increase in value.

(Ignore the fact that your sister lived rent-free at your parents for a while, as it is not relevant to this. What they arranged between themselves is their own business).

So, by living in the property, you have accrued benefits that your sister has not. You have had security and you have paid a monthly mortgage which is a significantly better deal than any rent you would have paid to a landlord (ie mortgage on reduced sum (capital sum-£50k), no landlord profit). But you have also taken on the maintenance and improvements.

If you had been joint landlord with your sister all this time, you would both have had a rental income and your mortgage would have been paid off to the same extent, with any luck. When the time came to sell, it would have been an very easy calculation to go 50/50, as per your original agreement.

So, all this time your sister could have been receiving rent on the property you are living in. You haven’t been paying your sister rent but instead you have been paying the mortgage company. If you’d been renting that flat, you would have been paying a lot more than that monthly mortgage payment you are currently paying, for all of the above reasons.

In summary, you’ve had it easy. It’s nice that you kept the property well-maintained, but you would have been paying for that as the property-owner anyway. I would see that as the price you pay for being the one who got to live in the property, while your sister was being charged that premium in whatever rent she was paying.

I think you know that you are not being fair to your sister. Your tone in your post ‘I suppose’ this and ‘I suppose’ that, suggests to me that you are trying to wriggle out of doing the right thing here. Bringing up the fact that she lived with your parents rent-free smacks of childish whataboutery.

You don’t say how much you have ‘overpaid’ on the mortgage...did you chuck a lump sum in to pay a bit of it off with the aim of reducing monthly repayments? If you were savvy enough to do that, you were surely savvy enough to understand that it would have had an impact on your property ownership arrangements with your sister!

As far as I can see, the only extra cash you can retrieve from the sale of your flat would be if you had made a significant spend - say 10k on a new kitchen - that had massively boosted the re-sale value of the flat. Even so, you would have enjoyed the use of that kitchen so I wouldn’t expect you to re-coup the full amount. That’s your only wriggle room and you may decide to be gracious about it for the sake of family unity.

Other than that, keep to your original agreement.

You had the great benefit of living in the property all these years.

Your overpayment of the mortgage complicates things

• it was very "unsavvy", btw, unless contributed to that

Morally, I'd say deduct the overpayment, then split the rest 50-50
Legally - and after you upsetting the family - I expect you'll have to settle for a straight 50-50

It's hard. You would have never lived there if it wasn't for your parents gifting you both the money. You've paid into it, she's paid rent. She has never had any benefit to the ownership of the flat- you have. But you e also payed for that privelage. Your share of the mortgage has decreased as your husband has also become financially responsible for bills/ mortgage. I'd probably stick to the original, you could argue that you've had the most advantage, and would have had nowhere if she hadn't agreed. And still would have been paying bills and rent.

Humbug, I don't think that's fair. I think you and your dp should be paid for your work, but the profit bèlongs to the estate and should be shared, otherwise you should have bought the others out and the house would have been yours to improve. You should split the difference.

SD OP has paid for the privilege, but so has her sister. OPs sister has received no rental income at all from O.

OP has had a great deal with her and her husband paying lower mortgage payments (compared to rent) and now OP wants to raid from her sisters interest in the house.

I think you should split evenly and consider what you have paid to be rent. The same as she has been paying elsewhere

And op, get a proper agreement with your dh if you now remortgage with him, to protect your investment. So far he has been the lodger, you might want to keep it that way, or if you want to recognise his contribution seek legal advice. If you have children make a will.
You could keep this flat as yours and buy somewhere with dh as joint property, or he could overpay to catch up with what you have paid as deposit. Get advice so you know where you stand

I think you should deduct the overpayments you’ve made from the total amount of profit, then split the rest 50/50.

You were seriously bonkers overpaying something you didn't own with your husband
Did you think she would never take her share?

I think your problem is your are changing it now to suit you retrospectively if these things were set out at the beginning it would be different

Your sister being on the mortgage means she enabled you to live there and presumably make a profit and pay less mortgage

Split 50/50