Need Advice

[PeterParker]

Here are the facts.
- purchased house in toronto five years ago.
- gf sold her house and moved in 1 year later-
- we have been living together now for 4 years.
- she was paying me rent
- no children just my dog
- we both have good jobs and money
- I was paying mortgage and house cost
- The house has increased in value by 150k
- we broke up;

So what do I ow her? part of the housing increase? rent back? if so the full 4 years? etc...

Thanks
Peter

[Mess]

Depends on the rent.

On the surface you owe her nothing. In common law relationships there is no matrimonial home and no split of assets.

If you were making a profit on the rent, then she would argue that the rent went into the mortgage and she has invested in the property.

If the rent just covered the expenses of the property then you would argue that you only charged her the ongoing cost of occupancy and you made no profit and she made no investment.

You would also argue that the she invested (or had the opportunity to) the proceeds of her home so she was earning money on that while living with you. This isn't a clear court argument but more of a way to shut her up and show that everything balanced out.

If you get into a detailed legal battle you will need to show the monthly expense of the property, or averaged per month, things like utilities, insurance, basic maintainence and property tax. This you would call the cost of occupancy. Don't include any kind of capital costs (investments in the property that would be expected to last 5 years or more) because this would be seen as an investment in the property. Ideally you can detail that you paid for large repairs and things like carpet or a new roof or furnace, and that the rent she paid only went to pay for things like cleaning supplies and utilities.

[PeterParker]

Thank you so much for the information. Did not think about the "cost of occupancy" as you put it and that the extra could be considered as going towards the mortgage. All considering this extra is a very small amount and there was no profit. I can only imagine the head ache of trying to figure out what a profit might contribute toward a mortgage considering the large downpayment I did....thanks again
Peter

[Mess]

It's a headache but if you end up in court it will be done.

Just pull out your bank statements for a year, do a monthly budget, show what the utilities etc were, come up with a cost per month.

If she paid more than that, offer her that amount, say it was $30 a month over cost, then offer her $1500 to go away and leave you alone.

Don't into an argument. The worst situation is to be on the phone and everything you bring up, she contradicts you. This achieves nothing. Do up a budget on paper showing the costs and what she paid, do a total, offer a settlement (if necessary) and then don't answer the phone.

By making a reasonable offer you protect yourself from costs if she tries to sue you later. So make it a letter, keep a copy, send it by courier (since the Post is on strike). Keep the delivery receipt.

[dinkyface]

For cost of occupancy in a given year, this is how I'd deal with the mortgage and equity (i.e. downpayment plus accumulated equity) portions. Everything else like property tax, utilities, maintenance (not improvements), insurance etc is just added on:

1) Each year you pay a known amount of interest which depends on mortgage balance and interest rate. Call this X.

2) Each year you 'give up' the investment return that you COULD have got if you had invested the equity (i.e. Estimated Mkt Value - Mortgage Balance). You should consider only the after-tax return. Call this Y. How much you 'give up' depends on your tax rate, and what sort of investment you deem to have similar risk/return as home ownership, and the investment market this year. The usual name for this is 'opportunity cost'.

3) Each year you 'receive' the increase in the house value, tax free i.e. Estimated Market Value this year minus Estimated Market Value last year. Call this Z. Yearly this changes wildly, and the average % increases depend on the historical time period - could be 0%, could be 10%.

Your 'expenses' are X (interest) + Y (after-tax opportunity cost) - Z (house value increase).

Well, that's the theory, but you see the problems in coming up with an actual number ... there are such huge assumptions you have to make about house price changes, and 'lost' investment returns.

Although... if you are doing the calculations for a specific time period e.g. the last 10 years since you bought the house, then you know your tax rates, you can find out the current market value (appraisal), but you still have to guess at the opportunity cost.

[dinkyface]

You might find when you do this calculation for the last 10 years, that your 'occupancy costs' (the X/Y/Z part I described) are actually very low, or possibly even less than 0.

This is because when you have little equity, your home investment is highly leveraged (you get full benefit of house price increases with little invested cash). However, this means you are taking on a lot of risk (leverage also magnifies the effects if house prices were to decrease). So, I guess, the solution is to use a similarly leveraged investment for estimating your 'opportunity cost' (Y).

[PeterParker]

Wow great replies. So I've come up with a number to give back to her; lets call it X. What comment should I write on the check

"common law breakup settlement - paid in full"

Thanks
Peter

[PeterParker]

is this the same thing as resulting trust; I see this being used very loosely. Left over rent money from expenses is being said to be put into a "resulting trust" or a certain percent of the mortgage.