Who receives the down payment when friends sell a jointly owned home?

Question

Two friends buy a house in California (JTWROS). Friend A puts down $50,000. Friend B does not contribute financially. When the time comes to sell the house do they split the $50,000 down payment in half or does friend A receive it all back? 
 
What if Friend A told Friend B he was gifting him the $50,000 down payment prior to the purchase? When the time comes to sell the house do they split the $50,000 down payment in half or is friend B entitled to the entire $50,000 since Friend A said he was giving it to him prior to the purchase?

James L. Arrasmith · Answer

In California, when two friends purchase a home as joint tenants with right of survivorship (JTWROS), the distribution of the down payment upon sale depends on the specific agreements and circumstances between the friends. 
 
Scenario 1: No mention of gifting the down payment 
If Friend A contributed the entire $50,000 down payment and there was no explicit agreement about gifting the money to Friend B, Friend A would typically be entitled to receive the $50,000 back from the sale proceeds before any remaining profits are divided equally between the two friends. 
 
Scenario 2: Down payment gifted prior to purchase 
If Friend A explicitly told Friend B that he was gifting the $50,000 down payment prior to the purchase, the outcome may be different. In this case, Friend B could argue that the $50,000 was a gift and should not be returned to Friend A upon sale. Instead, the $50,000 would be treated as part of the joint ownership, and any profits from the sale would be divided equally between the friends. 
 
However, it is essential to note that verbal agreements can be difficult to prove, and the lack of a written agreement may lead to disputes. In the event of a disagreement, the friends may need to seek legal advice or mediation to resolve the issue. 
 
To avoid confusion and potential conflicts, it is always best for friends or family members purchasing a home together to have a written agreement outlining their financial contributions, ownership rights, and how proceeds from a sale will be distributed. This agreement should be drafted and signed before closing on the property.

Delaram Keshvarian · Answer

Thank you for your question! 
 
A. No Gift: The agreement or intention of the parties at the time of the purchase of the property governs their interest regarding the property share or sale proceeds rather than the $50,000. All the contributions will be considered in this allocation.  
 
B.Gift: general laws is that a gift is not returnable. This rules can change in different contexts. E.g., the relationship between parties is also determinative. If the gift is from a spouse to another spouse, that may change the separate property to community property (under some circumstances). Then each spouse   may be entitled to half of the gift. 
 
  This is merely a discussion of general laws and not legal advice. For legal advice, more specific facts and investigations are needed. I recommend you consult with an attorney for more details.

Q: Who receives the down payment when friends sell a jointly owned home?