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Seller Representation
Sunday
Jan092011

Splitting Up After Living Together: We Didn't Get Married, Now What Happens?

Nash Law Firm, PLLC
By:  Stephen J. Nash
nash@nash-law.com
Many couples make a conscious choice not to get married.  They may have gone through a nasty divorce and never want to go through that experience again.  Some want to try things out before they commit to marriage while many simply don't believe in the need to get married.  Whatever the reason, when you live together in Minnesota there is no such thing as a "common law" marriage.  If you split up, the courts will not apply marriage laws or principles to the split.  They will treat the assets and liabilities of the couple as a business partnership that is being split.  In other words, you often find yourself in a divorce without the rules.

The biggest asset and liability that often has to be dealt with is real estate.  Who owns the property?  Who gets the equity?  Who suffers the loss?  Who gets the property?    
Who Owns the Property?
The first thing to look at is the title.  Whose name/s appear on title?  If both appear on title does the deed specify what each of their interest are (50/50 or some other division).  If only one name appears on the deed, did both contribute to the purchase and cost of the home?  If so, was there an agreement that the one that does not appear on title was to be an owner of the property?
If the deed does not clearly identify the true ownership of the property, a messy fight can follow.  If there is no written document to rely on, the fight is based upon a verbal agreement that neither side will agree upon and circumstantial evidence (I sold my house and the proceeds went into this house, you made all of the house payments but I paid for all of the groceries and utilities, etc.).  It is anyone's guess as to who will win this battle.
Even the economy can effect this battle.  When times were good and properties had equity, it was the person who did not appear in title who fought to have their ownership interest recognized.  Today, it is more likely to be the owner in title that will fight to have the non-titled person recognized as a co-owner to share in the loss.
What Share Does Each Own?
There is no rule that co-owners of property have to have a fifty percent ownership so if it is not clearly identified, there can be a fight over the division of ownership.  In good times, people will fight for a greater percentage of ownership to capture more equity, while in bad times, the fight is for a lesser ownership interest to reduce liability.
Like the fight over who owns any interest in the property, the fight over what that ownership interest is tends to be a messy fight over what was said and done throughout the years.
What Happens When We Own The Property Together But Don't Want To?
When you own property together in Minnesota without a written agreement and/or marriage, a co-owner of real property can bring a lawsuit called a partition action.  In this lawsuit, the court determines what each person owns and then divides the ownership accordingly.  The court could split the property so each owner becomes the sole owner of their share of the property or, when impractical, order the property sold and divide the profits or losses between the owners.  Except when dealing with farm land or large tracts of undeveloped land, the court is going to order the property sold and divide the profits or losses.
Today's economy has a great influence on this type of lawsuit in that if the property is worth less than what is owed, are the owners able to pay off the loss?  Is it better to hold the property?  If so, how is the mortgage/s going to be paid?  
Who Decides What the Property is Worth?
In good times, if one of the parties wants to keep the property by paying the other, the issue of the value of the property will arise.  This can be resolved by agreement, by an appraisal method or by the court based upon evidence supplied by each party.
If the property is going to be sold to a third party, both sides presumably have the same interest to get the best price in the sale so that the issue fades away.  The problem in these cases tends to be getting an agreement as to who will list the property.  If the parties cannot agree to a real estate agent to list the property the court will eventually decide who will list the property.  No matter how the real estate agent is determined, both sides will lose if they do not have trust in the real estate agent, especially in this market.  It is difficult to sell a property in this market with cooperative sellers.  With uncooperative sellers, the task is daunting.  
How to Avoid a Messy Fight
Since people who live together do not get the benefit of the laws and rules set-up for married couples, they need to enter into a written agreement that spells out their ownership rights and obligations, including what should happen if one of them no longer wants this partnership.  This is essentially a partnership agreement.  
While most people do not feel the need for a written agreement when they live together, the fact is, if the relationship sours it is the best way to avoid a nasty and expensive court battle. A written agreement also prevents misunderstandings between the couple as to the expectations of each.  If both are in agreement on these issues, that agreement is in writing, the chances of a fight later on greatly diminish and, if there is a fight, the more likely it will come out that way the couple intended when they first went into the ownership with each other.
One of the biggest problems in resolving these fights without a written agreement is that the couple never sat down and actually discussed what is going to happen if they ever split up. Both make assumptions about what they are doing, but the other either is making a different assumption or simply makes the argument that best benefits them once the problem arises.   A simple written agreement that spells out the ownership interest and obligations of both parties, how costs are to be allocated between the parties, states the rules that will govern if one party decides to end the co-ownership and also sets the rules for any disagreement (arbitration or litigation, each side pays their own costs of a dispute or the losing party must pay the costs of the prevailing party, how the value of the property is determined, can one partner buy out the other, etc.) can save time, money and heartache.
Whats worse than a divorce?   A divorce without rules.