Relationship break up - house

Hi,
My partner has decided he wants to break up, we bought a house together a year ago, in order to buy this I sold my house at a significant profit, we had lived in it together for 3 years, the proceeds of which were used to fund this purchase, we also did a significant amount of work on the new house, spent around 50K on alterations and new furniture. The house cost 325K plus stamp duty, total spend including alterations is around 400K. House has been valued at 350K due to all the work done. My partner put in around 55K towards everything, we got a mortgage for 240K and the rest of the money came from the proceeds of my house. He paid the deposit on the house, 32.5K, the rest came from the proceeds of my house. Now he wants half the equity, 233K owing at this stage, do I have any come back on the amount that came from my house.

No, there was no agreement made about what to do if we split up. I know I was stupid but love is blind. I can't afford to pay half and it seems unfair that he makes a profit while I make a massive loss.

Please, has anyone any advice.

Really sorry to hear about your breakup. Yes love is blind and people need to be waking up to this issue because it is a situation that seems to be happening a lot.
Use all your supports to get through this.

Are both your names on the deeds for the new house?
When living in your old house did you split the bills evenly ie did he contribute half of the mortgage payment & all bills for the 3 years you were living together?

Obviously you need legal advice on this.

I would be very surprised that any court would give him anything more than his money back + 50% of the increase or decrease in the value of the house.
Your starting point should be that the house has declined in value by €40k. His share of this is €20k, so he will get back €55k - €20k or €35k. If I was a judge, that is what I would give him.

Brendan

Your current house was financed by a combination of debt (mortgage 240k) and equity (totaling 160k from both of you).

Total spend was 400k, current valuation 350k, total debt 233k. That implies there is about 120k of equity in the house.

If he put in 55k, the mortgage was 240k, that implies you put in 105k using the equity from your previous property. It would seem fair to me that you split the equity from the sale of the property in proportion to what you both put into it initially, if you both shared the cost of servicing the debt equally (ie split the mortgage payments) in the meantime.

You made a joint purchase of an asset that has declined in value. You invested more initially, so unfortunately you now own more of the loss in value than he does.

I would split the net proceeds of the sale 65/35 in your favour which is in proportion to the orginal equity.

So Cromulent, you are saying

Current equity = 120k

His share in this 55/160 = 41.25

I would be quite confident that had the property risen in value by €40k, he would be demanding half of it. So I think the starting point should be to get him to take 50% of the fall in value.

His initial stance is probably tactical, so that the munsterred will settle for something less than fair and be pleased with it.


Brendan

Brendan said:

So I think the starting point should be to get him to take 50% of the fall in value.

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I think that munsterred owns 105 160ths of whatever equity (positive or negative) there is in the house based on the initial funding mix.

I think the fair thing is that the investors|owners split the gain/loss in proportion to their initial equity investment, assuming they have split the servicing of the debt burden equally.

Whether they are splitting up a net profit or a net loss is neither here nor there as far as I'm concerned, the same logic should apply to both outcomes.

Yes, but if the OP starts off by offering a fair deal, she will probably split the difference between a fair deal and an unfair deal, which means she will end up with an unfair deal.

I agree with you that your suggestion should be the target, just not the starting point.

brendan

I've changed my mind.

The initial cost of the property was 400k (240 + 55 + 105)

Debt - 240k = 60%
Equity A - 55k = 14%
Equity B - 105k = 26%

The debt holder (mortgage provider) is a secured creditor. The equity holders (A and B) are unsecured creditors.

The property is liquidated at 350k which is a 12.5% loss.

The outstanding debt of 233k is discharged to the secured creditor leaving 117k of equity to be divided between the unsecured creditors (A and B). The total loss on the investment is 50k (12.5% of 400k). A and B own 12.5% of the loss on their initial equity investment, but they should split the loss attributable to the 60% debt component equally, assuming they were servicing the debt equally.

55 x .875 = 48k Loss attributable to Equity A = 7k
105 x .875 = 92k Loss attributable to Equity B = 13k
240k x .875 = 210k Loss attributable to debt component = 30k Divide this by 2 => 15k loss each for A and B.

Equity A -> 55k x .875 = 48k - 15k = 33k + 3.5k (retired debt) = 36.5k
Equity B -> 105k x .875 = 92k - 15k = 77k +3.5k (retired debt) = 80.5k

So both A and B bear the loss attributable to their orginal 40% equity investment proportionally (26/40:14/40), and they split the 30k loss attributable to the 60% debt component equally (50:50).

Fair?

I am a great believer in being straight up. Forget tactics. This is no time to be playing games..

Cromulent's suggestion is fair to both of you.

To summarise my (2nd ) effort. The initial investment was 160k equity + 240k debt = 400k. That 400k investment is now composed of 233k debt + 117k equity + 50k loss (based on 350k valuation).

40% of the 50k loss is attributable to equity and should be split 14:26 (20k loss split 7k:13k)
60% of the 50k loss is attributable to debt and should be split 50:50 (30k loss split 15k:15k)

A should assume 22k and B should assume 28k of the 50k loss.

So.... equity 117k (split 36.5k+80.5k) + debt 233k (discharged) + loss 50k (split 22k+28k)= 400k.

Phew!

PM1234 said:

I am a great believer in being straight up. Forget tactics. This is no time to be playing games..

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This only applies where both people are straight up.

Munsterred's ex is not being straight up with his proposal.

Brendan

Brendan said:

This only applies where both people are straight up.

Munsterred's ex is not being straight up with his proposal.

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Sadly it is quite rare but one usually finds out too late.

Nonetheless one should not let someone's low morals ruin doing the right thing by another.

What Comulent suggested is fair.

Well done Cromulent btw!

Went through something similar 8 years ago. The way it was worked out was that both parties got back what they paid initially to make up the purchase price. Bank was paid off and then profit was split 50:50.

There is no set ways of dealing with this. It is all about negotiation and a good legal team will work wonders. They rarely reach Court and ours was settled in the Law Library.

There is no reason for the OP to be objective about this (and a post which starts "my partner has decided he wants to break up...." is, to me, a bit of a red flag) but I would not encourage OP to be so quick to assume that partner is being wrong\deceitful\unfair.

The original house was owned by OP, but she and partner lived there for three years;

Depending on how their joint finances were arranged, it is entirely possible that the partner might regard himself as having some claim to some of the profit on the sale of the original house. This might well be supported by the facts (and ultimately by the courts).

I am not positively disagreeing with what has already been said - just saying that without all the facts, I would be a touch slow to take sides.

MOB said:

There is no reason for the OP to be objective about this (and a post which starts "my partner has decided he wants to break up...." is, to me, a bit of a red flag) but I would not encourage OP to be so quick to assume that partner is being wrong\deceitful\unfair.

The original house was owned by OP, but she and partner lived there for three years;

Depending on how their joint finances were arranged, it is entirely possible that the partner might regard himself as having some claim to some of the profit on the sale of the original house. This might well be supported by the facts (and ultimately by the courts).

I am not positively disagreeing with what has already been said - just saying that without all the facts, I would be a touch slow to take sides.

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Exactly - which is why it is simplistic of anybody to assume, as some earlier posts seem to, that some sort of 50:50 split of anything is automatically or necessarily relevant in this specific case.