Dana Bull, a real estate adviser with Compass in Marblehead, calls it “the pre-nup of real estate.”
The idea is simple: If you’re looking to buy property with someone you’re not married to — whether it be a significant other, a sibling, or a friend — experts recommend you draw up a cohabitation agreement. It’s a written legal document made between unmarried homeowners who live or buy together, setting clear rules for shared financial responsibilities and how assets and debts will be divided if the relationship ends.
But people often hesitate to discuss an agreement with such negative connotations, Bull explained, believing that trust alone can govern their buying process. “It should be a no-brainer,” she said. “But it’s almost like, ‘Well, if we don’t think about it and just trust each other, we can go for it.’”
In Massachusetts, when a married couple buys property together, that real estate is considered a marital asset and is protected by probate court. But when unmarried people buy together, those same protections aren’t in place. Without a cohabitation agreement, there are a host of complications that arise if a partnership breaks down. Among them: no automatic legal or financial protections, a loss of equity, uneven debt allocations, and possible costly litigation.
Jay Davis, an attorney and partner at The Davis Law Group in Quincy, has seen the fallout firsthand.
“I’ve seen situations where partners have contributed nothing, then have been put on the deed, and their equitable interest shoots up to 50 percent,” he said. “I’ve seen people pay hundreds of thousands of dollars to buy out what I like to call the ‘disgruntled partner,’ who is looking for — and expects — to get large sums of money [after a breakup].”
On the other hand, Bull points to an instance in which one partner had been paying $3,000 a month toward a property they never owned. Situations like this can involve one person acting essentially as a landlord to the other. While the “renter” may invest money into the mortgage, home repairs, and renovations, only the owner holds onto growing equity.
Overall, unmarried people buying together is becoming more common.
“People are wanting to buy real estate, and they don’t necessarily want to wait until marriage, right?” Bull said. “That’s why we’re seeing this come to light in this generation.”
In 2022, roughly 555,000 unmarried couples in the United States purchased homes together. According to a Wall Street Journal analysis of Census Bureau data, that accounted for a 46 percent increase from the decade prior.
“With the cost of real estate being so expensive in the Greater Boston area, it’s difficult for younger people to buy their first property. But if you can buy jointly with two buddies, your girlfriend, your boyfriend, whatever the case may be, you get a headstart,” added Tim Sherman, an attorney and partner at Sherman Law, with offices in Boston and throughout the South Shore.
Some cohabitating couples simply do not have any interest in getting married for a host of reasons — but that doesn’t mean they don’t want to own property.
This is nothing new; the state of Massachusetts lists cases going back to 1989 as examples of unmarried couples ending up in court over property disputes. Still, legal and real estate professionals say not enough people are drafting cohabitation agreements, and the number of people who may need one has only been growing.
Creating a cohabitation agreement
As for the contents of an agreement, Sherman created an acronym that helps buyers translate their wants and needs into a contract: DUMPS.
D stands for “down payment.” However a down payment is produced, whether it’s a 50/50 split, a 20/80 split, or something else, it should be formalized to protect those contributions if a breakup were to occur.
U refers to “utilities,” which covers not just electricity, gas, and internet bills, but condo fees and the other costs incurred when running and maintaining a home. Another way of looking at it? “Who’s paying what and how are we accounting for that?” Sherman said.
M represents the “mortgage,” the loan that most buyers will need in order to purchase a property. “This is about allocating how that mortgage is going to get paid and who’s responsible for what portion of it,” Sherman said.
P stands for “parting ways.” This part of the agreement determines what happens if the buyers were to split up, outlining what contractual obligations and rights each party has.
S refers to “stays,” which lays out who has the right to stay in the property and buy the other person out, as well as the details of that process.
Working with an attorney to create a cohabitation agreement can cost anywhere from $500 to $3,000 and up. “You could find you could likely find a respected local attorney who would be willing to create a basic but well-drafted agreement for under $1,000, or you could go to a large law firm with an estate and family law department and pay more for a more sophisticated agreement,” Sherman said.
Bull recommends rolling it into your closing documents. “If everything’s top of mind, I think that’s the ideal time to do it — just sign it when you’re signing everything else,” she said.
While it’s yet another added cost during an undoubtedly expensive process, the pros underscore it as a worthy investment. With a cohabitation agreement in hand, any uncomfortable conversations will have already happened, and it very well may avoid even costlier litigation in court.
“How many six-figure investments are you going to make in your life? Davis reasoned. “Is it worth spending a couple thousand on an attorney to protect that?”