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Is there a standard formula/convention to calculate the % of ownership on a property based on the following situation

  • I am buying property together with my partner and her mother. Lets assume for now the property was priced at $100,000 for easy calculation
  • My partner and mother are putting a downpayment of $30k each ($60k) from their own personal funds
  • I am putting $0 in downpayment
  • We are taking out a mortgage on the remainder $40k.
  • My wife, her mother and myself plan to split the monthly mortgage payment evenly (3 ways).

My assumption is that the property ownership should be calculated based on - Partner and mother own 30% each from their initial $30k downpayment - Remainder % is calculated based on amount each of us are paying to the monthly mortgage

Would the above be right or is there a more conventional to calculate this?

marked as duplicate by Pete B., JoeTaxpayer mortgage Feb 2 '18 at 21:49

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  • I guess unless you and your wife has signed a prenup, the amount your wife puts down is the same as if you put it down (and the other way around if situation was reversed). With this logic, then in the end your mother in law will own 30% + (1/3) * 40% = 43,3% and you and your wife will own the rest. – ssn Feb 2 '18 at 16:45
  • Can you edit to clarify whether the third person is your partner or your wife? The answer may differ depending on your marital status and depending on the jurisdiction. To that end, please also add a country tag (and maybe a state tag, if US). – shoover Feb 2 '18 at 18:17
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You should have it specified with your partner and mother in law before making the purchase.

In the end, after the mortgage is completely paid off, it seems obvious that the ownership amounts should be the mother and partner having 43.33% each (30 + 40/3) and you having 13.33%.

However, if the house were immediately sold the day after buying it, for $100,000 (ignore taxes, etc), it would be ludicrous for you to expect 13.33% of the $60,000 remaining after the mortgage was paid off, having put in $0. So a fairer option would to have percentage of ownership change over time, according to total money put in.

Thus, to start with, your mother and your partner own 50% each and you own 0%. If the mortgage is $2,000 / yr, and you each pay $666.67, then after 5 years your mother and partner would've paid $33,333.35 each, and you would've paid $3,333.35, leading to them having 47.6% ownership each and you having 4.8%.

If you reach the end of the mortgage, then it has converged to the expected 43.33% / 43.33% / 13.33%.

  • 1
    Actually it shouldn’t really change over time - because they still have the liability split evenly between them. So even if the house was sold the day after the purchase, the split would still be the same - otherwise OP would come out of the deal short handed (debt) and the two others would have gained 13,300 dollars (surplus). The percentages would stay the same the entire time - doesn’t matter how each individual chooses to fund their share (with debt or equity). – ssn Feb 2 '18 at 22:28
  • If by liability you're referring to the mortgage, it would have to be paid with the proceeds of the sale before any dividing up can occur. How would OP come out of the deal shorthanded? Sell for $100,000, pay back $40,000 mortgage, leaves $60,000. Are you suggesting that it should be split $26,000 / $26,000 / $8,000? – Magua Feb 2 '18 at 23:43
  • None of that matters - it would all depend on what is in the deed. – Victor Feb 3 '18 at 0:43
  • @Magua yes exactly - and that is the precise reason why the distribution never changes. Each individual is liable for 1/3 of the remaining debt (13,300). If you didn’t use the income from the sale to pay off the debt, and OPs wife and mother in law owned 50% of the house each, OP would come out of the deal short 13,300. Wife and mother in law would then make 100,000 * 50% = 50,000 - 13,300 in debt = 36,700 (= surplus of 6,700 each). Ownership remains the same no matter how the house is financed, either by debt or equity. Makes no sense that equity holders own relatively more than debt holders. – ssn Feb 3 '18 at 9:04
  • This may be a country difference, but in the US it is literally impossible to sell the house without paying off the mortgage. – Magua Feb 4 '18 at 5:33
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It would be nice to know what country this is in because some countries could have special laws regarding the ownership.

For instance, in Australia, the ownership percentages will be specified in the deeds when you buy the place. So no matter what amounts get put in frombeach party the ownership won't change..

It is always important to specify all these issues from the start in a contract before any purchase is made or else things will most probably end up in court if there is a dispute between the parties.

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