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My partner and I purchased a house together in DC. We each put the same amount down, but because of our salary differences, I pay 2/3 of the mortgage, and he pays 1/3. We have made a great deal of money on the house and intend to sell it in the near future. Am I correct in assuming that standard practice would be for us to get shares of the equity in line with our contribution percentages? Does anyone know if there are specific laws regarding this in DC? (Not sure if this matters, but despite my better judgment, he is on the deed, but not on the mortgage.)

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    Did you discuss any of this beforehand? Did you put any of it in writing? What is 'fair' to one person may not seem 'fair' to another. This is why it is critical that whenever you mix money and friends/family (which you should avoid wherever possible), you put everything in writing. Preferably reviewed by a lawyer, if the amounts are large. There is then less chance that misunderstandings will lead to disagreement in the future. If you are asking what is the 'correct' legal split, that's a very broad question not suited to this site. It probably is not set in stone. – Grade 'Eh' Bacon Dec 6 '17 at 17:00
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    Let's assume that you and your partner rented an apartment, and you paid 2/3 because your income was higher. At the end of your lease term, obviously there would be no 'equity' to figure out, because you wouldn't own anything. In a very broad sense, a mortgage payment is often comparable in size to rent. Therefore your partner may have assumed that similar rules apply, and that you were subsidizing the 'rent equivalent', not 'changing your legal ownership in proportion to the property'. If you disagree with eachother... it could get ugly if you let it get ugly. – Grade 'Eh' Bacon Dec 6 '17 at 17:02
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    You mentioned the split of the mortgage payment, but what about the rest of the household expenses? Electricity, water, trash, internet, etc. This should also include any other maintenance costs or improvements made to the house. I strongly feel that those expenses should also be given some level of "credit" when trying to fairly sort this out. – R. Hamilton Dec 6 '17 at 21:07
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    Does "partner" = romantic/domestic partner or business partner? Is this your primary residence? – Dan C Dec 7 '17 at 0:43
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    Good news : You'll get to know your partner much better. Bad news : you might not like it. – Eric Duminil Dec 7 '17 at 12:55
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IMHO, the word partner is relevant and changes the answer. If you had used the word friend instead, I feel that the most fair equity breakdown would be based on the contribution amounts. But in this case, the word partner implies that you are in this together, and if your income situations reversed at any point of time the contribution amounts would also have reversed without any questions asked. Or, if one of you lost your job and were unemployed for a while, perhaps together you would have tightened up on expenses and gotten through it. Therefore, I would consider fair in this case to be an equal 50/50 split. But obviously you both have to agree that's fair in order for it to actually be fair.

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    The other thing is that presumably the couple is going to need somewhere to live? I would expect most of the money would go straight into the next house, which makes the question pretty academic. Of course, if the OP said ex-partner, that would make things more ... complicated. (As the higher-earning member of the pair, I was always clear the fair split was 50-50, but then I expected us to be together for life - so far, so good.) – Martin Bonner Dec 6 '17 at 20:46
  • If you don't go 50/50 now you could have a fight on your hands and when the dust settles 50/50 will look like a great deal, and you'll probably end up there anyway. Look at the bright side: At least she put in 1/3. Where I come from she would get 50/50 even if she put in nothing. – Bohemian Dec 11 '17 at 21:08
  • @Bohemian - Just FYI, she is a "he" per OP. – TTT Dec 11 '17 at 21:11
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There is no "standard practice". The terms of ownership should have been put in writing when you bought the house.

Without anything in writing, the equity should be split in whatever manner you both can come to agreement on. Splitting based on total contribution would be fair in my opinion, but there's no law or anything that I am aware of that would enforce that split. If you can't come to agreement, it will have to go to civil court. As it stands now, you will not be able to sell or refinance the house without his approval (and vice-versa).

Not sure if this matters, but despite my better judgment, he is on the deed, but not on the mortgage.

Yes, it does matter. He has no legal responsibility to pay the mortgage. He could decide to stop paying his portion of the mortgage, and you'd either have to pay it all or let the bank foreclose and then be responsible for any remaining balance (which would wreck your credit but not his).

I would put together some sort of document (doesn't have to be fancy) that outlines how the mortgage payments should be split, and what happens when the house is sold. This is not an indicator of a lack of trust. All it is is an agreement on what should happen at that time just so you don't have to make that decision at closing time.

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    It could be fair to split 2/3 to 1/3 but it depends on a lot of other things. Staying at home can be a job too, etc. – DonQuiKong Dec 6 '17 at 21:03
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    @DonQuiKong (like the name btw). It's not entirely fair that way since they both put down the same amount upfront. When we take into account the time value of money it gets even more complicated. – Dean MacGregor Dec 6 '17 at 21:13
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    @DeanMacGregor They just have to split to a percentage equal to total contribution each of them made divided by the total. This takes into account the equal upfront amount plus the difference in mortgage payments. – Leon Dec 7 '17 at 15:24
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    @Leon Well they can certainly choose to ignore the time value of money for simplicity. Nothing says they have to make my old finance professor approve. That being said, if they do care about the TMV then they can't just split the percentage of contribution. You have to discount all the contributions back to the original time of down payment first then you can compare those figures to one another. The discounting would essentially cancel out if they had put the same ratio in for all payments but since down payment was different, discounting matters. – Dean MacGregor Dec 7 '17 at 15:45
  • @Leon But it ignores the fact that they each got equal benefit from the house during the holding period. – David Schwartz Dec 8 '17 at 21:44
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What is fair is hard to say without knowing all the details. If one person put in more cash but the other person did a lot more work on repairs and maintenance, presumably that "sweat equity" is worth something.

In a divorce, courts generally say that each party is entitled to half the value of any assets acquired during the marriage, regardless of how much cash each provided. In many marriages the man provides most of the income while the woman does a lot more work around the house. It's very difficult to determine the comparative value, but it's fair to suppose that if each didn't think they were getting as much as they were giving they would have sought a divorce sooner.

Of course it's possible that you put in more money AND you put in most of the work. I don't know.

You could certainly make a case that if you put in 2/3 of the investment, you should get 2/3 of the profit. See how he responds. If he accepts that, great. If not, use it as a negotiating point and go from there.

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In addition to D Stanley's answer, I would like to mention how to calculate how much each of you have contributed.

total_equity = market_value_of_house - remaining_mortgage_balance

your_contribution = (total_equity-down_payment)*2/3 + (down_payment)/2

your_partner's_contribution = (total_equity-down_payment)/3 + (down_payment)/2

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    You're only computing for equity? That's far less than the amounts actually paid by both people, and boils down to an almost-exactly-50% split, especially if the house was owned for less than ~10 years. – PotatoEngineer Dec 6 '17 at 19:21
  • So not fair the down payment does not get any credit for appreciation. – paparazzo Dec 8 '17 at 19:52
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You need to account for the equity of the down payment and not just a 1/3 v 2/3 split. For example, if you each put down 10% initially, then the shares should be 36.67% (10% + 1/3 of the remaining 80%) and 63.33% (10% + 2/3 of the remaining 80%), if you want to make it "fair."

The down payment % should be calculated (if you don't know the exact % already) using the initial purchase price, not the current market value.

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    1/3 of the remaining 80% assumes the mortgage has been paid in full. As an extreme to demonstrate why this method is not fair, consider the case where they've only made one mortgage payment since the down payment. – Paul Dec 7 '17 at 0:19
  • Shoot, you're right. That's what I get for a rushed post in the middle of the work day. – sirjonsnow Dec 7 '17 at 13:18
  • If the OP is confident that the partner would have considered himself obligated to pay 1/3 of the 80%, even if the mortgage were underwater, then this is fair. – Acccumulation Dec 7 '17 at 18:23
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On the assumption that normal household bills (insurance, housing taxes, electricity, etc.,) have been equally shared, as both of you probably used them equally, best bet is to take the down payment figures straight off the 'profit', and split the rest 1/3, 2/3. Obviously any selling fees would not be included in 'profit', and would come straight off the top. Or - would even that figure get the 1/3, 2/3 split...

  • Note that if EVERYTHING was shared in the same proportion (so 2/3-1/3) then at least emotionally it should not be a big step to agreeing that the fair distribution is 2/3-1/3. Unfortunately, as mentioned here, this is quite unlikely. – Dennis Jaheruddin Dec 8 '17 at 11:16
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    So the person who paid 2/3 also got to use more of the house? – David Schwartz Dec 8 '17 at 21:46
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I would calculate the exact dollar amount each has paid towards the house, take that amount as a percentage of what the total paid is, and that percentage is what each gets of the equity.

Example: you both bought a house for $500,000 (somewhat immaterial...) Person A put down $50,000 Person B put down $50,000

There were a total of 60 months paid into the house at $2000/month totalling $120,000.

So a total of $120,000 has been made in payments towards the house at the point of sale. A paid 2/3 of the $120,000 in payments, or $80,040; so B has paid $39,960.

Add back their $50,000 contributions to each of their payment amounts and you get a total for A of $130,040 and B of $89,860. This makes A's total percentage contributed 59.11% (130,040/220,000) and B's 40.89% (89,860/220,000).

Now they sell the house and make $100,000 in equity

A should get 59.1% of $100,000, or $59,110, and B would get 40.89 or $40,890.

That's assuming all other things being equal....

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There are many different factors. Given that this situation is a mixture of business and personal, you're going to have to make judgment calls on which factors to consider.

If your partner hasn't incurred any risk regarding the house, then business-wise, he's not entitled to any of the gain; he's a debt partner, not an equity partner. So he's entitled to what he's paid, plus interest. What interest rate to use is complicated, but the simplest one to use is the mortgage interest rate. So for each of his payments (down payment and monthly), you'll have to multiply the payment by the interest factor calculated from the time elapsed from the payment. If this sounds complicated, don't worry, there are lots of online calculators that can handle it, or you can just use Excel.

Another issue brought up by @Grade 'Eh' Bacon is that if your partner is living in the house, then he can be considered to have incurred rent obligations. These could be larger than his monthly mortgage payments, so he could actually owe you money.

If you're confident that he would have covered the loss if the value of the house had declined, even though he was not legally obligated to due so, then there would an argument for considering him an equity partner. That will then raise several more questions about how to calculate his equity percentage. This will largely be based on the counterfactual "What percentage of the loss do you think he would have covered?" One way of addressing this would be to consider you to have bought 2/3 of the house. Then 1/6 of down payment was an "extra" payment by him (if he had bought 1/3 of the house, then he would be responsible for 1/3 of the down payment, so by paying 1/2, he paid 1/2-1/3=1/6 extra). So by this calculus, he is entitled to 1/3 of the profit from selling the house, plus 1/6 of the down payment plus interest. Another way would be consider his extra down payment as an equity contribution. In that case, the math is a bit more complicated to explain. Suppose B is the original purchase price, and you each put D down (for a total down payment of 2D). Then you each bought D/B of the house, leaving (B-2D)/B of the house left over. Of that remaining portion, you bought 2/3, and your partner bought 1/3. So your partner bought D/B+(B-2D)/3B = (3D+B-2D)/3B = (B+D)/3B of the house, while you bought (2B-D)/3B of the house. If the profit is P, then he is entitled to (B+D)P/3B. Then there are further variations if you think he would have covered half of the loss and want to consider him to have half the equity, or if you think he would have covered some other percentage.

Again, all of this has to be considered within the context of your relationship.

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    Not an equity partner? His name is on the deed. – paparazzo Dec 8 '17 at 19:54
  • @Paparazzi But he's not on the mortgage. The bank's on the deed, too. Being on the deed doesn't made you an equity partner. – Acccumulation Dec 8 '17 at 19:59
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    You have different idea of the purpose of a deed than I do. – paparazzo Dec 8 '17 at 20:00

protected by Chris W. Rea Dec 11 '17 at 21:44

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