Buying a Property Without Your Spouse – Benefits and Drawbacks
While it might seem like a highly unromantic proposition, there are situations where it can be beneficial to purchase a home without your spouse. For instance, maybe your spouse has lots of debt or poor credit, which can dramatically lower your mortgage options. Even assuming that you and your partner’s finances are rock solid, meaning there’s no need to keep one of you off the mortgage, there can also be good reasons for having only one name on the property deed.
Ultimately, there is no one-size-fits-all answer to a question like this. As with most things in real estate, each approach has pros and cons, and whatever decision you make will largely come down to your particular circumstances. To help you decide, this post will take a broad view of what needs to be considered when buying a home without your spouse.
Can I Buy a Home Without My Spouse in NYC?
You sure can! Unlike some states, New York State is not a community property state, meaning that any assets you gain during marriage do not need to be jointly owned by both spouses. That said, you will need either a prenup or a postnuptial agreement to allow you or your partner to purchase a property individually. In addition, the funds used to buy the property must also be separately held.
At the end of the day, a property is just like any other asset. Therefore, it shouldn’t be that big of a deal to own property separately from your spouse. That said, a proposition like this is still something you’ll want to discuss carefully with your spouse to ensure you’re both on the same page, especially if the separately owned property isn’t an investment property but a home that both you and your spouse will live in.
Benefits of Purchasing Property Without Your Spouse
So, why would you want to purchase a property without your spouse? Well, there are quite a few good reasons.
For a start, you might have a superb credit score and many assets, while your partner has little to no assets and terrible credit. In a situation like this, it’s very common for the spouse with better financials to purchase the property separately, as it will mean an easier time getting a mortgage at a good rate. You may even be able to add your spouse’s name to the property deed after the mortgage is finalized, meaning both of you will be co-owners of the home. However, you could have difficulty finding a bank that will agree to this, as most banks prefer for everyone on the property deed to also be a co-borrower.
Another reason is that you may want to keep the property safe from creditors. For instance, maybe your spouse has defaulted on a major loan before your marriage, or they have an underlying medical condition that could lead to costly medical expenses in the future. By keeping your spouse’s name off both the mortgage and the property deed, you can ensure that creditors won’t come after the property.
Lastly, keeping your spouse’s name off the mortgage and property deed can greatly simplify things if you wish to sell or bequeath the property later down the line. This can be smart if you’re purchasing the property with the money you received from an inheritance before your marriage. Perhaps you wish to leave the property to a child from a previous marriage after you die, or you want to maintain control of the property if your marriage heads south.
Drawbacks to Purchasing Property Without Your Spouse
Every benefit has a drawback, and it’s well worth considering these drawbacks if you’re thinking of purchasing a home without your spouse.
For one thing, owning a property separately from your spouse can make it more difficult to grow your financial future as a couple. Having jointly owned bank accounts and assets can seriously boost your financial position, providing more opportunities for bigger investments in the future. You won’t be able to achieve that financial growth to the same degree if you and your spouse keep all your assets and finances separate.
Keeping your spouse off the mortgage but on the property deed can also cause some issues. For instance, the spouse whose name is not on the mortgage has no legal responsibility to help with mortgage payments, which can strain a marriage if financial difficulties arise. Things can get even worse in the event of a foreclosure, as only the mortgage owner’s credit will be damaged.
Finally, there’s the issue of homeowner’s associations (HOAs) and condo boards. If you and your spouse live together, but only one of you is on the property deed, the HOA or condo board will only want to talk with whoever’s on the deed. This can be a hassle as it means your spouse can’t speak on your behalf or attend board meetings when unavailable.
You May Need a Quitclaim Deed
If you do decide to purchase a property without including your spouse in the property deed, you will almost certainly need your spouse’s consent if purchasing with the help of a mortgage. Most lenders require spouses to sign a quitclaim deed, a legal document in which the signer declaims any interest in the property. Lenders often require a quitclaim deed to protect themselves against any future title disputes. If your spouse refuses to sign, this can end any hopes of owning a property separately from your spouse. Quitclaim deeds also mean that there is no way for you to purchase a property behind your spouse’s back without them knowing.
Deductions to Consider
Tax-Deductible Mortgage Interest
One of the biggest tax benefits of buying a house is being able to deduct the interest paid towards your mortgage. Mortgage interest makes up a large portion of your monthly mortgage bill, so you can see thousands of dollars in tax savings each year.
Though the rules were a little more relaxed back in the day, you can still deduct most (if not all) of your mortgage interest every year. This option is open for houses up to $750,000 in price as well as Home Equity Lines of Credit that are used to make improvements to your home.
2. State and Local Property Tax Deductions
Another great tax benefit of buying a house is state and local property tax deductions. If you’ve already paid your state and local property taxes, then you can deduct most of them when federal tax time comes. With these deductions, there’s a limit to how much you can deduct from your taxes.
Due to the Tax Cuts and Jobs Act of 2017, there is a $10,000 limit to how much you can deduct from your current tax bill. Even so, that’s enough for most homeowners to get a sizable deduction once tax time rolls in.
3. Loan Point Deduction
Loan points are fees that are paid as part of a mortgage loan or a refinance. They are expressed as a percentage of your loan and can easily add up to several thousand dollars. If you refinanced your loan or have a HELOC, then you’re in luck.
You can deduct the amount of money you pay towards points each month. However, this is a deduction best left to tax professionals.
4. PMI Deductions
Do you pay extra for Private Mortgage Insurance? For many people with less-than-ideal mortgages, PMI is just a part of life. Thankfully, the extra fees you pay have an upside that you can enjoy every April 15.
Much like with property taxes, this has a caveat as well. If you and your spouse earn under $100,000, you can claim your PMI as a deduction. Otherwise, singletons can only claim this deduction if they make under $50,000 a year.
Final Thoughts
It may not make for the most pleasant dinner conversation, but there is really no reason why a married couple shouldn’t consider purchasing a property separately. Just try to approach the subject from a financial perspective, and create a postives and negatives list together. If it makes financial sense, who knows, perhaps it’s enough motivation to take the next step.
Please note the information in this article should not replace the opinion of a Certified Public Accountant. Please consult with your CPA before making any decisions that may affect your taxes.
Sources:
[1]:https://www.chase.com/personal/mortgage/education/buying-a-home/buying-a-house-newlyweds
[2]:https://propertyclub.nyc/article/the-tax-benefits-of-buying-a-house