Drafting a Partnership Contact for Sweat Equity

4 Replies

Hey BP -  My girlfriend and I are planning to buy a home in the Seattle area to renovate and live in, but since we aren't married it seems prudent to draw up a contract to clarify how the property will be handled if we ever separate.  I've already found a few boiler-plate contracts for investment partnerships that divide up the value of a property based on the initial investment of each party, but we both agree that we should add some language to address how equity from the renovations will be allocated, as I will be doing most of the carpentry and project management myself.

I'm curious if anyone here has experience or suggestions of what equitable terms could look like in this scenario.  Ideally I'd like to avoid any language that would require extensive record keeping of hours or wages expended, though I will concede that's probably the most responsible solution.  

Thanks!



@Evan Schmidt "I've already found a few boiler-plate contracts..."

Highly recommend you have a qualified attorney in your state draft the operating agreement.

A multi-member LLC taxed as a partnership might be the way to go.

Partnership agreements are pretty flexible and "waterfall schedules" can dictate how profit/loss and distributions are allocated during the life cycle of the LLC.  Best to have a tax CPA/EA and attorney working concurrently on entity formation and operating agreement drafting.

@Eamonn McElroy:

Highly recommend you have a qualified attorney in your state draft the operating agreement.

A multi-member LLC taxed as a partnership might be the way to go.

I agree, an attorney will definitely be involved when we finalize the agreement. I'm just trying to get a sense for what the contract could/should look like.

Also regarding LLC's, my understanding is that using an LLC for the purchase of a primary residence has a lot of drawbacks, such as higher interest rates and the exclusion of tax deductions for mortgage interest and capital gains.  Do you still think it would be worth it?

Just simplify your lives and make I a straight forward 50/50 split. If you are not happy with that have her contribute a greater amount of cash otherwise get her involved in the sweat equity as well.