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Watch for the Legal Pitfalls of Moving Back Home in Order to Save Up for Buying a House
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Brad and Leah Marks never envisioned themselves living in Mr. Marks’ childhood home. Together for eight years and married for two, the Markses had rented for years while studying, planning to buy a home.
Despite saving, the couple could only get preapproved for a small mortgage that would have allowed them to buy a property well outside of Toronto. With student debt and most of their income going to rent, the Markses decided to hunker down and save, living rent-free. Mr. Marks, 37, has yet to secure a permanent teaching position.
“We moved in with Brad’s parents in January,” says Ms. Marks, 29, an office manager in a medical office. As the elder Markses watched their friends welcome home adult children, “they wanted us to save money and pay off debt. We’re back in Brad’s childhood bedroom with glow-in-the-dark stars on the ceiling.”
Data suggest that more young couples, such as the Markses, are moving home. According to Statistics Canada, between 2011 and 2016, the share of young adults aged 20 to 34 who were living with at least one parent rose to 34.7 per cent from 33.3 per cent.
Longer-term, the trend is more pronounced. The 2011 Census of Population showed that 42.3 per cent of 4,318,400 young adults – aged 20 to 29 – lived in the parental home, up sharply from 32.1 per cent in 1991 and 26.9 per cent in 1981. For many young people, it’s the only path to home ownership. They are realizing that to afford a home in a major centre such as Vancouver or Toronto they need to save aggressively – and curb spending dramatically.
But with the move home comes new realities. While many families welcome and support adult children and their partners, experts warn that financial and legal considerations should be weighed carefully to prevent misunderstandings – and legal fallout.
In places such as Toronto, almost 50 per cent of young adults aged 20 to 34 live at home, Statscan figures show. And the reasons are primarily financial. Nancy Worth, an assistant professor of geography and environmental management at the University of Waterloo, recently conducted a survey of 700 young adults living at home in the Greater Toronto Area and found that 80 per cent of them lived at home to save money. “Couples were more likely to move home on a temporary time frame,” she says. “And parents want to give them that space in their home.”
Cindy Marques, a Toronto-based financial planner, has countless clients who are struggling to raise money to buy their own homes. “They’re not able to save up while paying rent,” Ms. Marques says. “And a lot of them are prioritizing debt and sacrificing savings.”
Parents, too, are sacrificing, she says. “They could be earning rental income from those properties.”
But Ms. Marques says many parents recognize that the real estate landscape has changed dramatically – and they want to help their children as much as possible. Certain cultures, such as Asian and Southeast Asian families, are used to intergenerational living. “As well as allowing them to save, this also protect millennials from taking on more debt,” she says.
Ms. Marques advises parents that they should take steps to ensure young couples don’t get too comfortable, while encouraging them to save as much as possible. “Parents should levy a small rental fee,” she suggests, “because it keeps them accountable.”
She says that if parents want to help further, they can invest those monthly payments, presenting the couple with a tidy sum when they decide to move out and buy their own place. “Those payments can be stockpiled for a nice down payment,” she says.
Nathan Lauster, an associate sociology professor at University of British Columbia, says the trend of couples living at home can be a solution to the oversized housing purchased by the baby boomers that has now become too expensive for younger generations.
“A lot of people are living at home as couples. In many cases, their parents have quite spacious houses – and there is room for these couples. We’ve preserved all of this land for the suburbs – and that’s kept this housing young people could afford out of reach.”
Parents should also be cognizant of the legal risks that come with these novel living situations, cautions Ron Shulman, a family law specialist and founder of Shulman Law Firm in Toronto. “There are more informal arrangements now,” he says, “and [parents] are quite surprised when things go sideways. Emotions fly high when everyone is [in] one house.”
Mr. Shulman says he’s seen an uptick in cases where families are in conflict over domestic arrangements gone wrong. “It’s a growing trend,” he says.
He warns that in a situation where the young couple separates, there can be an expectation on the part of the partner who’s leaving that they are entitled to a share of the property. This can happen when a couple has spent a lot of time renovating the parents’ property – increasing the home’s value – or paying off the mortgage on the home.
“They can say: ‘Hold on, we built up the equity in this house – and now we deserve to benefit,’” he says.
He says that under Ontario’s Family Law Act, upon separation, both partners have equal right of possession of the matrimonial home that is “ordinarily occupied” and shared by the two individuals. But that can be problematic if the home is owned by one partner’s parents.
Mr. Shulman says that such situations can be avoided through a conversation early on about what each party expects – and what they will receive. This can also be drafted up legally in a simple rental or more extensive cohabitation agreement that stipulates what the couple’s contribution will be – and what they will recover should they move out. “Legally, this establishes a structure,” he says, “and it saves the relationship because everyone knows what to expect.”
He also suggests both sides track everything that they contribute, to avoid lengthy – and costly – disputes later on. “It’s important to document,” Mr. Shulman says.
For the Markses, there has been much goodwill from both sides. Brad and Leah help pay for groceries and do some cooking. The elder Markses, on the other hand, have offered to house the young couple for longer, should they wish to stay. “We don’t really want to,” Ms. Marks says, ”because it delays our life plans further.”
But the couple are grateful that the housing situation has allowed them to pay off thousands of dollars in debt since the beginning of the year. “They’ve given us this great chance to live rent-free,” Ms. Marks says. “It’s been good.”
Article courtesy of the Globe & Mail, Outline Financial and FSB as originally posted in the Globe and Mail.