Estate PlanninG

Think Before You Gift: The Legal Implications of Gift-Giving and Joint Ownership Between Unmarried Couples

Moving in with a partner without getting married is becoming increasingly common. In fact, among 18 to 44-year-olds, the percentage of adults who have lived with an unmarried partner is higher than that of adults who have been married.

When you live with a romantic partner, it may feel as though you share everything. And legally speaking, this may be true to some extent. For example, there's a trend toward unmarried couples buying homes together. While this might make economic sense, especially when household budgets are being stretched, it can also create legal complications.

Gifts given purely out of affection can also create unintended consequences. This includes gift taxes and relinquishing control over the gift once it's accepted. While your heart might be in the right place, without understanding gifts and joint ownership, you could be making a decision you'll regret.

Moving in with your partner when you’re not married

Decades ago, it was rare—and even scandalous—for unmarried couples to live together. However, like many aspects of American life, this is changing.

Over the last two decades, the number of unmarried partners living together has almost tripled from 6 million to 17 million.

As marriage and cohabitation trends change, Americans are becoming more accepting of unmarried couples living together, according to Pew Research Center. In addition, arrangements previously only available to married couples, such as car insurance, have been extended to unmarried couples. Today, most insurers allow a significant other (e.g., a boyfriend, girlfriend, domestic partner, or fiancé(e)) to be added to a car insurance policy.

Sharing a single auto insurance policy with a domestic partner can save you money on premiums. However, if your significant other has a bad driving history or they get into an accident on a policy that you share, it could increase your rate.

Joint ownership and unmarried couples

As the number of cohabitating partners has increased, so has the number of unmarried couples buying homes together. According to the National Association of Realtors, 9% of homebuyers in 2020 were unmarried.

Although it might make financial sense to buy a home together, a property that both partners jointly own presents legal risks and obligations to each co-owner. These same risks and obligations can arise if one partner already owns a home (or another asset) and adds their partner to the title.

First, adding another person to the title of a property can trigger gift tax consequences in states where the joint owner doesn't have the right to sever their interest. In such states, the gift is typically valued at half the property's value. If the gift value exceeds the annual gift tax exclusion amount ($16,000 in 2022), then a gift tax return will need to be filed by the person giving the gift (i.e., the original owner). Due to the high lifetime estate and gift tax exclusion amount ($12.06 million in 2022), it may be unlikely that any gift tax would be owed; however, the value of this gift will be deducted from the giver's lifetime exclusion amount at their death.

In addition, once a joint owner is added to the property, that property can immediately be susceptible to the new joint owner's creditors. This has implications for the original owner if a new joint owner's creditor goes after the now jointly owned property to satisfy the debt.

Finally, unmarried partners who buy a home together could automatically inherit each other's share of the property, depending on how the property is titled. This happens when the property is deeded to the new owners as joint tenants with right of survivorship. The following alternatives to joint tenancy do not trigger survivorship rights:

  • the owners holding the property as tenants in common
  • having a trust own the property, with the nonowner partner having a right to occupy the property for a designated period
  • creating a limited liability company to own the property with a retained right of occupancy for the surviving owner

A cohabitation property agreement that protects each partner's property interests should also be considered. An agreement of this type can include a dispute resolution process, an exit strategy, a buyout agreement, and a plan for account and property division if and when the couple splits up.

Gift-giving in unmarried couples

Love can make people act irrationally. Somebody might be convinced that they have met the love of their life, and this can prompt them to make decisions they regret in hindsight. "Look before you leap" is good advice when considering marriage. But before marriage, "Think before you gift" is equally applicable.

Gift has a specific legal meaning rooted in contract law. It is something that is transferred from one person to another for a nonbusiness reason and without compensation. A few conditions must be met to make a gift valid:

  • The person giving the item intends it as a gift.
  • The giver actually delivers the gift to the receiver (and doesn't simply promise to do so at some point).
  • The receiver accepts the gift from the giver.

If a gift meets these requirements, contract law recognizes it as a valid gift. As a result, the gift is enforceable, and, in most cases, it cannot be taken back. So once a gift is successfully made, the giver loses control over the gifted money or property.

Gifting an object of relatively little value probably will not be a big deal in the event of a breakup. It is unlikely that somebody will ask for a birthday or Christmas present back so they can return it for a refund. But major issues can arise if the gift is something large—like joint ownership in a property.

Imagine you add your partner to the title of your house (so legally, half the house is theirs). After a split, they're unwilling to return their share to you. To get it back, you would have to buy it from them. But what if they don't want to sell it to you? Alternatively, they could buy your share or sell their share to another party. They could also petition the court to perform a forced sale of the property and distribute the proceeds among the two of you or ask the court to partition the property. These are probably not scenarios you would have agreed to if you had thought through your gift of joint tenancy ahead of time.

A house is a dramatic example of the perils of gifting, but the same legal considerations apply to any gift, with the possible exception of an engagement ring. Because it is a conditional gift that is predicated on a future event taking place, the giver may have the right to get the ring back if the future event (the wedding) does not take place. However, courts have taken different views on this issue, which could come down to the specifics of the broken engagement.

Even though cohabitation without marriage is more popular than ever, unmarried couples still do not have all the legal protections that married couples enjoy. You might be sure that you've met "the one," and you may be right. But before you hand over the keys—literally and figuratively—to another person, there is no shame in talking to a lawyer about how to protect yourself. Don't hesitate to contact us if you have any questions about how to gift property to your significant other. Call Santaella Legal Group, serving all of California, at (925) 831-4840.

Read more:

Estate Planning is Crucial for Unmarried Partners

What’s the Difference Between a Prenup and a Will or Trust? How Do I Know Which One I Need?

Here's How Divorce and Remarriage Can Affect Your Estate Plan

Estate Planning Questions to Consider for Couples With an Age Gap

What Happens To My Spouse’s Debts After They Die?