Dear Quentin,
My husband bought a new home with his brother for $350,000 in 2009, prior to our marriage. They both contributed to the down payment and paid the mortgage. It was a tough subject between us, but thankfully I have a great job and excellent credit. We saved money for a down payment, and I qualified by myself to finance our own home separate from his brother.
He moved out of the home with his brother in 2012 and his brother has assumed all finances related to the home since. My brother-in-law just refinanced the home and took my husband off the title and deed. Among themselves, they’ve discussed my brother-in-law paying my husband back the $30,000 he paid for the down payment.
“‘My brother-in-law just refinanced the home and took my husband off the title and deed.’”
I questioned my husband about why he would only be paid back the down payment amount and not any of the increased value of the home. It’s currently valued over $700,000. Wouldn’t it be more appropriate for my brother-in-law to pay back twice the down payment, given the home value has doubled?
My husband said they discussed it, and because he moved out in 2012 and his brother has paid everything since then, his brother-in-law gets all that increased equity. I absolutely feel like my poor husband has been bamboozled by his greedy brother! Do I push this or just stay out of it and leave it between them?
I am the one who handles our finances. We have no debt aside from our mortgage, so we’re not desperate for the money by any means.
Wife and Sister-in-Law
Dear Sister-in-Law,
All eventualities should be formally agreed upon before co-buying a home with a family member or friend. For starters, if you buy the property as “joint tenants,” you each own 50% and, should one of you die, you cannot leave your half to a third party. If you are “tenants in common,” you can decide on your respective shares, and leave your own share to a third party.
Key questions for any cohabitation agreement: What happens if one person moves out and the other takes over the mortgage and utilities? What if one person moves out and they still split the mortgage, but one person pays the utilities? How will you divide your shares of the house if you have not contributed an equal down payment? Will one person be given the option to buy the other out?
If your husband moved out in 2012 and did not continue to pay the mortgage, and his name was on the deed, he was still entitled to half of the proceeds from the sale of the house, even if it did not seem fair to your husband. However, they decided to take another route, and your husband accepted the return of this down payment after living in the home for three years.
Other options
Your husband could have (i) insisted on 50% of any appreciation between 2009 and 2012, assuming there was equity in the house at that time. At the very least, they could have (ii) split the equity in the house 50/50 — minus half of the mortgage payments and utilities and taxes from 2009 to 2012. Or (iii) he could have taken 8.5% of $700,000 (as he invested 8.5% of the original sale price).
Alternatively, he could have (iv) calculated his down payment and equity in the home from 2009 to 2012 as a percentage of the original house price and apply that to the final sale price. A member of the Moneyist Facebook Group gives this scenario: $30,000 plus, say, $8,000 of mortgage payments for those three years. That’s 10.8% of $350,000 — or 10.8% of $700,000, which would be about $76,000.
Or (v) your husband could simply have taken the dollar amount of the down payment and equity from 2009 to 2012 with interest for the intervening years, given that your husband’s investment earned no interest over that time. However, given that they have already come to an agreement amicably, and provided your husband is fine to move on, it seems too late to renegotiate that now.
Theirs is already a done deal. Your husband should absolutely have his down payment returned. Could he have forced the sale of the house through a partition action? Yes, if it became acrimonious. But seeing as he moved out in 2012 and stopped paying the mortgage, their arrangement seemed fair to the brokers and allowed them to part ways without any lingering ill will.
You can email The Moneyist with any financial and ethical questions related to coronavirus at qfottrell@marketwatch.com, and follow Quentin Fottrell on Twitter.
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More from Quentin Fottrell:
• My married sister is helping herself to our parents’ most treasured possessions. How do I stop her from plundering their home?
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This post was originally published on Market Watch
