Splitting equity, what's fair?

[RandomMoth]

I'm buying a house with DP and we need to agree a declaration of trust.

Posting unashamedly for traffic and because I want robust opinions, as DP's attitude is that they trust me to do what's fair and they don't want to talk about it!

I'm putting in all the initial outlay (equity and costs) and will be paying more of the mortgage, in proportion to our incomes. We are going to pay all other expenses in proportion to our incomes and I'm suggesting that any savings we put away out of our monthly incomes will be treated as joint (50:50), but any work bonuses and any savings out of money allocated for personal spending would be treated as personal savings.

So the split I'm proposing is (a) my initial outlay is ringfenced and I get that back first (b) we each get back the amount we've paid off the mortgage (c) if we've made any substantial improvements to the property then we are repaid a % of their cost and finally (d) so long as DP has paid their share of the mortgage, any remaining profit is split 50:50.

Obviously if we split up soon after buying or if the property hasn't increased in value DP will get very little, if anything, but they dont own a property at the moment and they are being subsidised by me day to day, so I don't think that's particularly unfair.

However, if the value of the property does increase significantly they will get 50% of that increase despite having contributed a much smaller amount. This would also carry through into the joint savings, as I'll contribute most of the money but we'll share them equally.

I know I'm going to be clobbered for making this post gender neutral but in this case it shouldn't be relevant. We hope to have a child together in future but we will both still work full time and DPs earning potential won't be affected.

So AIBU? DP won't engage as they don't like to talk about us splitting up!

three comments:

1. it looks like, in the short term, there are some sensible ideas behind your proposed splits;
2. it needs to be time limited... as such time as you have children then something like this would become manifestly unfair to the partner who forewent earnings in order to do childcare; and
3. have you considered whether this is workable in practice, e.g.

whether it'd survive marriage?
how it'd be enforced?...
for this to be in a contract of some kind you'd need very precise wordings...
would you know how to e.g. calculate the split between interest and principal payments in an [i assume] repayment mortgage?
my instinct might be to leave improvements out of the calculations, because it'd be so complicated... how would you e.g. split the cost of building materials etc? what if one of you contributed far more labour to the improvements?
etc.

If DP won't engage and you can afford to pay the mortgage yourself and you're not married, have the house in your name only. DP can contribute more to living costs, and you can always revisit in the future or if you move.

I wouldn’t be doing it jointly and would advise my children not too if this was one of them.

The mortgage contribution each month should be shared equally between the two, I wouldn’t buy a house with someone who was only making a token gesture.

If you aren't married put the whole thing in your name.

Are you planning to marry?

Gender might relevant, because although you say both planning on going back full time, it may not work our that way.

Have you looked into paid childcare,? Or do you have someone providing free? Free childcare often comes at a cost. Usually annoyance .

Personally, I woulsnt buy a house with someone who wasnt putting anything in at all.

The set up I have, is that I own my house. Dp moved in. I pay the mortgage. We had papers drawn up saying he wouldnt ever have an interest in the house (that's the basic gist of it) do pays half all the other Bills.

I earn alot more so more than happy paying the mortgage on my own.

This would all change if we married (probably wont). Me and him have agreed that we will remortgage when he can match what I have paid into the house, his name will go one the mortgage only then.

We do not have joint savings. Again, I can save more. So I would not give him half of thay if we split.

We have our own accounts. He transfers money for Bill's to me.

Option 1
Personally if you can afford to do this on your own, I would do that.

Option 2
My second best option would be that you pay for everything in your % equity split.

So if you are paying 95% of the initial equity deposit, you pay 95% of the mortgage and 95% of any capital improvements and maintenance.

Option 3
You ringfence your initial deposit, however you also account for house price inflation (or falls) and then you both pay 50/50 of the mortgage and home improvements/maintenance.

So, you get back initial deposit plus or minus indexation for house price inflation/deflation. THEN what is left can be split 50/50 as you have both been contributing equally to the mortgage, maintenance and home improvements.

I do not like your suggestion because you are getting no ROI of your initial capital.

The set up I have, is that I own my house. Dp moved in. I pay the mortgage. We had papers drawn up saying he wouldnt ever have an interest in the house (that's the basic gist of it) do pays half all the other Bills.

With this though, you can argue that the interest cost of the mortgage is a 'bill' and shoudl be spit or at least have some contribution towards. So your DP is still getting a good deal here. :-)

With this though, you can argue that the interest cost of the mortgage is a 'bill' and shoudl be spit or at least have some contribution towards. So your DP is still getting a good deal here. :-)

Yes he is. But so am I. I earn 50% more than him. So if we split it proportionally, according to earnings, I would be paying a bigger chunk of bills.

He wont let me pay more than half the bills despite me also having a child. He also pays half the food delivery as well. He believes that we are a family (been in ds life for most of it) and wants to pay at least half of living costs. If I asked him to pay rent he would. Buy my mortgage is small (around £300 per month). Having had an awful split with ds' dad, I would prefer him not to pay the mortgage.

It took a lot of negotiation. And he wants to pay rent. I dont want him to. And we both do well out it.

I love AIBU, straight to the point and really useful!

Rattus:

1. I don't think this would happen but I agree, if it did we would revisit
2. Generally yes I'm comfortable on these points. If we married I think at that point you're deciding to go 50:50 on everything. Yes I could work out the interest / capital split. I think improvements do need to be counted as we intend to spend quite a bit but I think it would be improvements that we pay a third party for above a certain level of expenditure so we arent squabbling over DIY done 5 years ago

The disparity makes it difficult. I earn a lot more so if I said I wanted 50:50 contributions it would be impossible for them.

DP contributes in other ways, and I want to be with them.

Childcare would be paid and we would both continue to work full time.

I've bought a house in unequal shares before as tenants in common. The only way it can work is work out the percentage of ownership at the start, then to split the mortgage and bills 50/50. When the house is sold, split the remaining proceeds or losses in the same proportion the house had been bought in.

you can't ring fence your initial input- what if the property ends up in negative equity?

If dp wont do legal agreement then take the mortgage on yourself in your name only. Otherwise your split sounds sensible. I would not have joint savings though, I would have two seperate savings accounts putting same amount into each.

Ring fencing your deposit is fine and this agreement seems good until you have a child after which it should be changed to reflect that you are a family unit and one person normally has to take a back seat. In the event of marriage it should scrapped.

Tickle there are lots of different ways of doing it, it's just a question of agreeing and documenting it.

If the property was in negative equity I'd get all the money available and make a loss. Always a risk when buying a house.

Wavey, he will do a legal agreement, but he's avoiding discussing what it says. To be fair he probably realises he's getting a good deal as he's getting on the property ladder with my help, so he's not going to quibble on the detalls. I think he'll sign whatever I put in front of him!

If you ringfence the capital you're putting in, and you split up years down the line when property prices have quadrupled (unlikely, I know!) then your ringfenced portion of the equity will have fallen significantly in value.

I'd suggest ringfencing the capital as a proportion of the overall price, so if you're putting in £50k on a £200k property, you get back 25% of the equity.

The remainder of the equity could then be split proportionately according to how much of the ongoing costs you each pay, so if you're paying double what your DP does, that would be 2/3 (66%) of the remainder, ie 50% of the overall equity to you, and 1/3 (33%), of the remainder, ie 25% of the overall equity to him.

It sounds more complicated than it is in my head, but I can't see any reason why it's not doable.

All very sensible suggestions, but the refusal to engage is a major problem.

Does he have a chip on his shoulder about you earning more? Is he embarrassed that he can't take the lead on this or be the one making decisions?

Is he hoping that by not engaging you'll give him a bigger share than he's actually contributing to? The 'I trust you to do what's fair' sounds extremely passive aggressive and suggests he has an idea of what is fair and may kick off if what you're offering isn't 'fair'.

Lastly, not helping with what is a major and long term issue isn't a good start. Are you going to be expected to deal with everything and make every major decision because 'he trusts you'?

I'd think long and hard about getting into a legal agreement with someone who won't enter discussions.

I agree with LakieLady that you should ringfence your deposit as a % of the property value

Then work out roughly what you will contribute over the next 10 years and try to keep to equal proportions
e.g. A will pay 75% of mortgage and 75% of improvements
B will pay 25% of mortgage and 25% of improvements.

then you can have the rest after the deposit split according to those % values.

And do plan to re-evaulate in 10 years or if you marry or of the % contribution changes.

I don’t think I could marry and have children with someone with this attitude. We did put in place a deed of trust for our house deposit because my then DP paid the majority of it, and if we had split before marriage and children then obviously he would have got that back. But post marriage and children, we are a family. I couldn’t enter that state with someone who was totting up expenditure like this.

DP and I are buying a house at the moment. DP received an inheritance from GPs for a house deposit. So he is ring fencing the money he is putting in, not the percentage. We are sharing bills 50/50.

The reason he's doing it this way (I am not fussed either way, it's not my money) is because I earned a lot more than him until this year, as he has been working his way up in a very niche industry. Therefore, I have contributed a lot when he didn't have it.

I actually haven't spoken to him about when we have children... Should he then forfeit the deposit if we have kids? (genuine question as I hadn't even thought of this til this thread)

What about you just have the mortgage and then you both treat it like a rental.
You both pay into bills 50\50.
You sweep the account into a savings each month and use for holidays and anything else you need, with a view to changing things if you marry...

It seems sensible but a bit mercenary as partners less workable when children or marriage are involved. I think there is also a very big assumption that you’ll both work full time forever. You can’t possibly know how you’ll feel until the baby is here. Many parents’ plans change. What about mat leave, what if you have a disabled child? What if one of you loses a job? It feels like
You’re setting up all your finances as a business arrangement rather than as a family. It would worry me beginning a child into that sort of financial set-up.

Before I married my husband, he had a flat and that was in his name only and stayed that way until we bought a house jointly. I paid 50% of the bills including interest in mortgage but nothing towards equity. I then saved indepdently as did he but we had very clear joint financial goals l. If we’d have split, we’d have been able to go our separate ways with ease. We then combined everything on marriage.

I echo the thoughts about not entering into a legal agreement, or perhaps legally enforceable agreement with someone who does not engage. Fair enough that one partner takes the lead but they should be supported by the other partner, to to brainstorm and review what is being considered

You may think that they will be ok with 'whatever' you decide. In a very worst case you could find them hooked up with someone else, who is very happy and entirely prepared to fight for a fair share

Don't risk it, entirely your own is way better. Given you trust your own self to always treat the other person fairly, that would be fine.

Why dash yourself about complications that do not need to exist.

Have a rethink If you decide to have children and the less capital rich partner takes the hit on income.

Herculepoirot I have a child from a previous relationship and when I bought a house with exDP I went into things with your attitude, 50/50 all the way.

When we split ex was very bitter, and tried to take me for as much as he could get, luckily there wasnt much to go around!

I have my existing child and my own interests to protect so I want to be fair, but not at the expense of my own financial security when I've paid the lions share!

I think the previous child makes a massive difference to your circs and the advice you will get. It’s understandable you’d want to protect things.

"I'd suggest ringfencing the capital as a proportion of the overall price, so if you're putting in £50k on a £200k property, you get back 25% of the equity.'
I've only just read this thread and this is one thing that struck me no-one had mentioned. I was just about to comment until I saw LakieLady has raised this issue. Well done Lakie.

I also note that some have said that if/when you marry it should go to 50/50. I don't agree. You only have to read MN to see how many marriages fail. You could marry, change everything to 50/50 and your marriage fall apart a year later. I would ensure the deposit as a % of house price was always ring-fenced in case marriage failed.

I think if I was just living together (rather than married) it would be preferable for one person to buy the house and own it 100%. The other then pays 50% of normal household bills and pays rent. Any bills relating to work specifically for the building (extension, new roof, windows etc) is paid for by party in whose name the house is.

In a relationship break up, it is then easy to have a clean break.