Getting Married?: Buying a House from the Love of Your Life
Congratulations! Not only are you getting married, your betrothed already owns a home. You just won the marriage lottery. Or maybe you both own homes, even better! Now you need to have the big talk, the one about where you’ll live, whose name is going on which deed, and how you’ll get there.
Not that you asked, but this writer thinks you should tread very carefully with a partner who doesn’t want to share property. It’s natural to want to protect one’s own interests, especially in something like a home, especially if you or your spouse-to-be have been building equity for a number of years, since before you met. Most people wouldn’t want to share property with a co-worker or even a good friend. But a partner for life? You’ll share a lot over the years. You’ll need to consult each other about decisions you used to make alone, like moving to a new city, taking a new job, or deciding where to vacation. And if you have children? Well, “let’s agree to disagree” on parenting decisions isn’t really an option.
You’re about to enter into a permanent compromise. Sharing and viewing each other as equals is just the first step. Deciding what to do with your home or homes should be part of the bigger discussion you’ll have about finances before you get married.
In most states, all you need to add someone to a deed is a quitclaim deed. When you bought your home, you may not remember signing and receiving a warranty deed, ceding ownership of the property to you. A quitclaim deed is a little different. Warranty deeds are used when money changes hands, between you and the owner, or your mortgage lender and the owner, whereas a quitclaim deed is used when no money is involved, no title search needed, and no title insurance required.
Quitclaim deeds are usually used when property is transferred within a family. In the case of divorce, and we hope that never happens to you, they are also used to remove one person from the deed. The laws governing these deeds, and all real estate transactions, differ slightly from state to state, so you should hire a reputable real estate attorney to advise you. Though there are federal tax laws that apply to quitclaim deeds and the transfer of property, state laws in California differ from those in New York, as laws in Florida do from those in Texas, Connecticut or Nevada. You get the picture. Make sure you’re protected and prepared to pay any resulting taxes by consulting with a qualified attorney.
If you both own homes in the same town, you’ll need to decide where to live, and what to do with the remaining property. If you sell one of the homes, you may want to do it before you tie the knot. Why? You won’t pay capital gains tax on the sale of a home (up to $250,000) as a single person. A married couple can only take advantage of one such exemption (though the amount is doubled, up to $500,000). If you sell a home as a single person, then share a home once you are married, the two of you as a couple will qualify for the exemption again after two years of living together. And if you use that gain to pay down the mortgage on what is now your joint residence? You might want to consider a home equity line of credit (HELOC) to help pay for the wedding, the honeymoon, or some home improvements you’ll both enjoy.
If you decide to keep both homes, hanging on to the second as an investment property and renting it, you may also want to add your spouse to the deed, or simply leave it to them in your will (You are getting wills made, right? Together? Good.) The two of you will need to discuss whether or not you’re ready to be landlords, if you take this route.
Marriage is a journey, an exciting one, and the best way to start that journey is on sound financial footing, with no blinders. Make the tough decisions now, and you may avoid a few arguments later. Now that you know where you’ll live and what your joint tax bill will look like, go kick up your heels at your wedding and enjoy the honeymoon!