Home ownership for unmarried couples

Their love is great and may last a lifetime. Both partners have children from previous relationships. They don’t really want to remarry, but they would like to live together. And ideally in a shared home. Is this feasible without a marriage certificate? Experts agree that there’s nothing standing in the way of a couple enjoying true happiness in their own home nowadays – not even the lack of a marriage certificate. But it’s advisable to take certain precautions and to set out joint agreements in writing.

Sole ownership ensures clarity, but is unbalanced

A couple have found their dream house or apartment. But which of the partners should buy it? Just one person? Or both together? And how should that happen exactly? The simplest solution is sole ownership: you or your partner acts as the sole buyer and is entered in the land register.

This is a good option if just one half of the couple wants to or can afford to invest in the property. The partner can contribute to the loan or – in addition or instead – enter into a rental agreement governing the rights and obligations of both parties. The contract can set out if rent has to be paid and, if so, how much, or whether the financial arrangements will be governed differently.

Even with sole ownership, the partner can share liability for the mortgage. This may improve affordability, as the partner’s income is then also included in the calculation. However, income from the rental agreement with the partner is often not accepted by banks.

If the owner separates from the partner or dies, the agreement can be terminated subject to notice.

To protect their life partner, the property owner can grant a right of residence to the other person that goes beyond their own death. Or they can leave the property to their partner in their will. However, the rights of their compulsory beneficiaries must be respected.

Co-ownership where both parties want to contribute capital

Often, both partners want to be involved in the purchase. This is feasible even if they want or are able to contribute different amounts of equity. In such situations, ownership of the property is usually entered proportionately in the land register, e.g. with shares of 30 and 70 percent of the purchase price. Future maintenance and renovation costs are then also shared based on this ratio. The partners can also deduct maintenance and debt interest from their taxes based on the ownership ratio. However, both partners are fully liable for the mortgage loan, regardless of how the co-ownership is divided.

Life partners often opt for a co-ownership ratio that doesn’t reflect the amount of capital contributed. In order to enjoy the same rights and obligations, unmarried couples can have co-ownership based on a 50 percent share each entered in the land register. In the event of separation or the death of one partner, the effective share of ownership must then be itemized. It can be very helpful to set out the actual property ratio in a partnership agreement or purchase contract.

Co-owners are also free to sell their share in the property independently of the other person, but they must grant the co-owner right of first refusal. In reality, this rarely happens, as few people are willing to buy co-owned properties. The surviving partner also has a right of first refusal in the event of death.

Common ownership gives both partners the same rights and obligations

Common ownership means that the apartment or house belongs to both partners, regardless of how much they contributed to the purchase. The same applies to any increase in value. The couple always makes joint decisions on their property. Both partners must agree to sell the property or take out a mortgage. If one of the partners dies, their heirs receive half. This can result in conflict, which is why it’s best to address any imbalances contractually.

Pillar 3a financing option not available for common ownership

In the case of sole ownership and co-owned properties, unmarried couples can use money from the pillar 3a to pay for their own home. However, that option isn’t permitted for common ownership.

Couples in a partnership don’t receive any OASI widow’s pension. If income and assets are unlikely to be enough for one partner to cover all costs alone in the event that the other partner dies, both partners can take out a life insurance policy and name each other as beneficiaries. This is strongly recommended if the couple have children, as their share of inheritance will be managed by the child and adult protection authority until their 18th birthday.

Partnership agreement provides clarity

A partnership agreement is advisable for unmarried couples, especially if they intend to buy a home together. That’s because living together in a partnership isn’t governed by law. The partnership agreement can define who bears which costs, how rights and obligations are shared and what happens in the event of separation or death.

A will or contract of inheritance is also recommended to provide the partner with financial protection. This can also stipulate that the surviving partner will receive the share of the property. However, the compulsory portions for legal heirs must be complied with.

Be mindful of high inheritance tax

Unlike spouses, surviving partners without a marriage certificate pay inheritance tax in most cantons. The highest rate applies in the cantons of Appenzell Innerrhoden, Geneva, Schaffhausen, Solothurn, St. Gallen, Thurgau, Ticino, Vaud and Valais. Otherwise, this applies only to unrelated third parties. It can easily eat up over a quarter of the total inheritance.

Many cantons apply lower inheritance tax for surviving life partners, but with limits or allowances. The cantons of Graubünden, Lucerne, Obwalden, Nidwalden, Schwyz, Uri and Zug exempt life partners from tax completely.

Definitions differ from canton to canton

The exact definition of a life partner in relation to tax law differs greatly from canton to canton. In Appenzell Ausserrhoden, Glarus, Jura, Lucerne, Obwalden, Neuchâtel, Zug and Zurich, eligibility for a tax reduction or exemption requires traditional cohabitation and mutual financial support for a minimum five-year period (exceptions: two years in Lucerne, ten years in Jura).

Basel-Stadt, Basel-Land and Uri avoid using the term life partner. They grant tax relief to “persons” who have lived in the same “household or place of residence” as the deceased for at least five years.

The cantons of Aargau, Bern, Fribourg, Nidwalden and Uri have a broader definition of cohabitation: in these cantons you only have to have lived “at the same place of residence in permanent cohabitation” for five years (AG, NW UR) or ten years (BE and FR) to be eligible for preferential inheritance tax treatment. This requirement is also met by a stable shared student flat/house or a pair of siblings living under the same roof.