Buying property with new DP (England) Unequal contributions. Both have DD/DS since previous relationships

[NoMoreLimbo]

Hi all. I was hoping someone could help by giving factual advice.

DP and I are due to get married. We do not have children together but have from previous relationships. We are also due to purchase a property together.

We will make sure everything is set out properly in writing and will get legal advice in the real world but wanted to get some understanding first. I am tring to avoid 'emotional' reactions from either him or myself as that just side tracks it all and would like ducks rowed up as much as possible before seeing a legal person.

We are going to buy a property together in England.

One person will contribute more to the deposit and one person less, but the person contributing more to the deposit will pay less towards the monthly mortgage (due to earnings). The person putting down the higher deposit also stands to inherit a significant amount from a parent (which will then be safe guarded somehow for that persons own children and should not be part of any divorce or inheritance to the other spouse). The person with the smaller deposit and higher monthly earnings only has that and there will not be a future inheritance from somewhere.

In case of divorce or death (own children to inherit each of us) how should any potential equity be split from the joint property?

For illustration: Person A contributes with a deposit of £150k and pays £1400 towards the monthly mortgage. Person B contributes a deposit of £350k and pays £700 of the monthly mortgage.

Grateful for any guidance on this

It’s a hard one because it depends on when, but I would say this is a situation where I probably wouldn’t get married.

It does really depend on timing though and the value of the house, if you did this today and then split up next year then it wouldn’t be fair to split anywhere close to 50/50 as the person who contributed £350k will get less than they should. If the mortgage runs to term and is all paid off and then you split up then potentially 50/50 would be fair, but it depends on the total value of the house. By the time the mortgage is paid off will you both have contributed the same amount in total?

We have decided to get married so that is all agreed. Even if we did not get married we would still be purchasing a property to live in together so the conundrum is still there.

I doubt the mortgage will ever be paid off in our lifetime plus I would expect us to downsize before we could pay it all off.

In my mind I see it as (now counting on the property not loosing value) if we were to split each person would get back what they put in. (there is also the same question when one of us passes away)

So person A would get their £150k and person B their £350k. Then it is the matter of how to deal with the fact that person A pays double to the mortgage vs person B. Even if the mortgage is not paid off there would hopefully be a bit of equity.

First rule is buy as tenants in common. Otherwise if you die the house automatically goes to hisband/wife.

"So person A would get their £150k and person B their £350k. Then it is the matter of how to deal with the fact that person A pays double to the mortgage vs person B."

It's straightforward to deal with that. The Deed of Trust will say something like A will receive their £150k and B will receive their £350k and then any equity above that amount will be split 2/3 for A and 1/3 for B (based on your figures of £1400 and £700 being paid towards the mortgage).

It can also say what you want to happen in the event of divorce or death etc.

To be completely honest, I would buy the house 50/50. So both pay the same deposit and the same mortgage payments.
Person A £150K + £1500 pm mortgage payments from income
Person B £150K + £700 pm mortgage payment from income and £800pm from savings. House owned as Tenants in common with a trust to allow each person to remain in it following the 1st persons death until they cohabit with a new partner or die.
Potential inheritances are irrelevant - an inheritance isn’t guaranteed until the person has died, and a lot could happen in that time.

Ring fence the deposits so you get those back intact, then split the equity 2/3 vs 1/3 as that is the mortgage contribution. Also, make sure mortgage is tenants in common (not joint tenants), and get parents to put their inheritance in trust for the grandchildren, otherwise it could be seen as a marital asset if a long marriage.

As a side note, if it's a £500k deposit and £2100 mortgage that won't get paid off, it must be an expensive house!

Is it better that the deposits be ringfenced as percentages rather than absolute figures?

I was going to add that as person A I’d want adjustment for inflation and loss of investment potential.

@Another2Cats Okay the 'deed of trust' sounds like that way to go. Could the deed of trust then also cover things like if Person A makes a large contribution to the house after purchase (thinking if some works need doing on the property).

@JoyousPinkPeer Okay noted regarding buying as tentants in common.

@SparklyGlitterballs I did not realise that banks would also let you set up a mortgage as tenants in common. I had 'heard somewhere' (do not ask me where from) that banks would only let you be joint tenants and jointly responsible for a mortgage.

That brings another quesiton to mind. As is now with my own property my two DC's would get this property upon my death. The outstanding mortgage would be paid off by the insurance and the two of them would have this asset to sell and be supported by.

As DP and I will have a joint mortgage which then needs to have an insurance on it, which I then guess is the same thing that pays out upon death, but DPs share of the house (as then set up as tenants in common) would go to his DCs.

@McSpoot Just so I am clear. Do you mean that 'as person A I’d want adjustment for inflation and loss of investment potential.' - that this would be for their higher share of the mortgage payments?

Thanks all for your input

@NoMoreLimbo
Sorry, had it backwards - I meant for the person paying the larger amount for the deposit.

Thanks @McSpoot for clarifying. Should not both deposits be adjusted for inflation? Otherwise, lets say if the house does not at all increase in value the equity is only what was put in as deposits. Then the person with the smaller deposit, paying the larger mortgage share, would in essence have their deposit reduced?

Yes, of course, both. But if I were person A (smaller deposit), I'd be less worried about insisting on it (and, if the house went up in value, I'd benefit from it not happening as it would leave more of the equity to be divided in the pool where I get more of it).

What order are you doing it in? Property then marriage. Or marriage then property.
IANAL but isn't there a thing where a marriage contract supersedes pre-marriage arrangements.

@senua At this rate it looks like the marriage will be before the property. Not at all as intended but 'life' and very much the property market.

I/we just want all the ducks in a row so there are not issues and no reason for arguments between us or confusion further down the line for DC's

@McSpoot Yes very true

DH and I own our house as tenants in common; i own 80% he owns the rest, reflecting what we put in (late second marriage for both of us). Now we’ve been married for ages and our separate kids are all grown up we’re going to transfer it to joint tenancy, which will make things easier for inheritance tax (very specific circumstances).

The point is, you could start off with TIC with shares reflecting the deposits, and review in 5 years to reflect who’s put in what since then/the stability of the marriage etc.

You have a choice when buying a house, when you get the legal pack from the conveyancer to create a tenants in common agreement, which can be split 70/30 in higher deposit persons favour. So if divorce or death, the equity of the estate from the house is still apportioned 70/30 for the kids or dependents. It's means it cannot be split 50/50.

The best protection you can give your DC is not to get married I would say. Removes any consideration of future inheritances passing down the 'wrong' line. Then buy a property as TIC in whichever proportion you decide is fair. You could change the %s periodically as the higher mortgage payer becomes a bigger owner.

I agree with the deposit part, the one that puts in more, should get that share back and the other would get their share (depending on the value of the house in that eventuality). Usually I'm an advocate for 50/50 in a marriage, however if you have DC from prior marriages it does make sense that you would want to ring fence money.

The mortgage payments in respect to who owns 'more of the house' wouldn't be as black and white to me. Depends on the circumstances and your overall attitude to earnings.

Personally, higher mortgage contribution could mean that the person with lower contribution is doing other things, whether they're doing the childcare or all of the bills / shopping and so they are offsetting that payment with something else. In our household, our money is combined and we see that as one pool that pays for everything even though one of us is the lower earner. But we do also have mutual DCs only.

This is a tricky one as in the other hand you could also argue that the one contributing the higher mortgage payments will eventually catch up to the higher deposit contributor in terms of equity.

I appreciate everyone will have opinions on marriage and wheter it is a good idea or not but that is not the purpose of this post or my questions so not any point of adding those comments in.

@TY78910 there is no need to childcare of any kind as all the DCs are much older. Same goes for shopping or chores etc that will not be done by the person paying less of the mortgage. If we had joint DC's that would be a whole different matter but as is they are all from our previous relationships.

As there is such a vast gap of how much person A and B will both contribute to the deposit and the mortgage we will both be much more at ease if it is all put down legally in documentation. E.g. If person A paying the higher mortgage payments is not then able to put some money away somehow to safeguard their own DCs or Person A's own old age if divorce/death by partner all the whilst Person B with the higher deposit and less mortgage payments will still have their big nest egg plus inheritance coming their and their own DC's way.

@olderbutwiser That is interesting solution and a good idea.

You might also want to think about your how you want to handle your pensions. Do you (or will you) have big DC pots? How equal are they? Do you want them to go to each other or your DC on death? Consider their position in the event of divorce too.

It's not unusual for DC pots to be more valuable than property these days.

One more option for you might be a life insurance policy which some will writers suggest to pay out to the DC or to the remaining spouse to 'even up' finances out of balance. Obviously it needs ongoing paying for and increases the total estate but sometimes can be useful to resolve issues.

Do not ringfence the deposit as a cash amount but as a % value. Otherwise in 10 years time when the house might have increased in value by 50% the contributor if the larger deposit loses so much more in terms of the increase in value.

This is what I would do:

1. Identify the % value of the house as original equity / deposit, and % mortgaged. So using your deposit example: house price £1m , of which 50% , £500k is deposit . A owns about 35% of that 50% of the equity, and B owes the remaining 65% of that equity
2. Then treat the mortgaged part of the equity in the same way, as a %, and reflected in the % of mortgage paid off at any given time… death, sale, divorce.

A lawyer should know better than me how to word this.

But I lost out BIG TIME by ring fencing my much bigger deposit as a cash sum, and when we sold my ex benefitted from the very big increase in value of my deposit , and I only got the original cash amount back. I very much wish I had done it as a %.

A key thing to think about is your Will. First 2nd marriages personally I favour each partner leaving their assets to their own children. But needing to leave a life interest so that the partner can continue to live in the house for life or a set number of years (after which the beneficiaries receive their share of the house).

If I was likely to be leaving a large inheritance to my Dc who had re-married late in life I might be tempted to leave the bill directly to my grandchildren.

Seen so many second spouses waltz off with assets and then leave their step children out of their own will. Maybe even re-marrying and assets go to a new partner, etc.

But maybe you are both young, and intending to start a family with shared children between you.

In which case I would just go 50:50 on everything.

@NoMoreLimbo this is almost equal to my situation. Bought house for 625k, I put in £300k dp £140k. He will pay 2/3 of mortgage payment. I have a child and he has none. We were advised to do a deed trust in which I own 65% (solicitor worked out what the % should be based on deposit as well as mortgage payments) and we were both happy. Also did wills which specify when house has to be sold if I die first so as child can have their share at x stage. Will written with the intention to marry so that also helped. Will also made provision for life insurance saying first pay off mortgage and then split what's left between child and partner.
A good solicitor will help you with all the ifs and buts. I feel as protected as I can be.

Thanks so much for the additional posts and suggestions.

@Chewbecca great to mention the pension situation. Only one of us has a pension pot the other nothing at all (due to different lines of work). I will also try find out about life insurance.

@DeepFatFried thank you so much for the post. I will read it again to try fully understand the suggestion.

@CiderJabs so the will 'Will written with the intention to marry' is then written prior you marrying each other (or if you do) and still remain valid if you do marry?

@NoMoreLimbo yes that's exactly it. Normally wills get cancelled when you marry or divorce but because we have already bought the house and are not married yet, solicitor said we could do it this way. It also protects us in the hopefully unlikely event that one of us dies before we are married.