Getting Married

Living Together, But Not Married? Consider A Cohabitation Agreement

Couples who love and support each other, but who don’t intend to walk down the aisle, could benefit from settling some important issues upfront. It could save a lot of heartache (and legal fees) later on.

If you are one of the growing number of Americans who are in a relationship and living with someone, a cohabitation agreement might not be top of mind – but it should be. 

You might ask, “Why should anyone go to the expense of paying an attorney to draft a cohabitation agreement when they are just living together?”  The answer is simple.  Even if you are not wealthy, you likely have financial, retirement or other concerns that should be addressed in the event you break up or one of you dies.  Though it might not be romantic, research shows that non-married couples are more likely to go their separate ways after living together – especially early in the relationship.

The appeal of cohabitating

Some couples like the flexibility of cohabiting as it gives them a chance to get to know their partner and then decide if they want to move toward marriage.  And despite the many financial advantages of marriage, such as lower taxes and potentially larger retirement and Social Security benefits, people are cohabitating more than ever before.  According to the Pew Research Center, the number of cohabiting couples climbed 29% from 2007 to 2016.  There are several reasons for this.  People over 50, who are the fastest growing age group opting to live together rather than marrying, want the benefits of an intimate partnership without the legal constraints that marriage involves.  In contrast, millennials prefer living together to focus on their careers before settling down and many want to establish a strong foundation for marriage.

What is a cohabitation agreement and why is it necessary? 

A cohabitation agreement is a contract between two people who are in relationship and live together but are not married.  Good cohabitation agreements are (ideally) crafted early on, and deal with issues involving property, debts, inheritances, other estate planning considerations and health care decisions.   As your lives become more intertwined, it can be more complicated (and expensive) to resolve these issues if there is a breakup or if you or your partner passes away after living together for many years.

There are several things that a cohabitation agreement should include, and those details will depend on your circumstances, age and levels of wealth.  People who are older generally have more assets and more complex financial lives and are more likely to benefit more from the protection provided by a cohabitation agreement.  The agreement needs to make detailed provisions for the property you and your partner have now, the property you might acquire in the future, and dispositions of it in the event of one of your deaths or a breakup.  It should discuss who is responsible for retirement savings and how they would be divided, health care directives and issues involving your children or children from previous relationships. It should also discuss the earning capacity of each party and the expectations surrounding financial support for one another.  

Some grapple with whether they should invest time and money into a cohabitation agreement. Keep in mind that cohabitation agreements can be inexpensive compared to the potential legal fees if there is a breakup or a death with no agreement in place. 

Cohabitation and common law marriage rules

Addressing the nature of a couple’s relationship is also imperative to a cohabitation agreement.  The agreement should make clear that the relationship is one of love and support, but the parties do not intend to marry.  This is especially important in a small number of states that recognize common law marriage. If you merely want to cohabitate, you need to be mindful of the rules surrounding common law marriage so there is no confusion about whether you might end up in one.  In most states that recognize it, there are four common requirements to establish a common law marriage:  You must live together, have the capacity to marry (you are not married to someone else), intend to be married and hold yourself out to friends and family as being a married couple.

When crafting a cohabitation agreement, both parties should agree that the following things are not evidence of a common law marriage: jointly owned property, making each other parties to the other’s estate, commingling funds, naming the other party on the other’s health insurance, and joint ownership of a residence.  It should also clearly state that both parties have no intent to marry now or be common law married in the future.  Normally, if a couple then decides to marry, the cohabitation agreement is no longer legally binding.

Cohabitation details to consider

In most states where cohabitation agreements are legal, they need to be entered into freely with no duress, and you and your partner should understand everything in the agreement.  Formal disclosure of finances in the form of balance sheets or income statements is usually unnecessary.  The agreement should address the state/country you reside in and the law you want to apply.  Ideally, both you and your partner should have your own attorneys help you with the agreement to make sure the contracts comply with state law and ensure they accomplish your joint intentions in drafting one. 

A cohabitation agreement should be distinguished from a pre-nuptial agreement.  While the former is designed to order the affairs of two people who currently do not want to be married, a prenup is an agreement two people enter into to organize their finances before they get married.  Both agreements should be drafted by an attorney, but a prenuptial agreement is more complicated and will require much more time, effort and detailed disclosure of finances by both parties. 

Each couple will have to decide for themselves, ideally in consultation with an attorney, whether it makes sense to create a cohabitation agreement.  Bottom line, you should consider drafting one if you have significant interests that need to be protected.  You have to weigh the benefits of the peace of mind that an agreement can provide.

About the Author

Robert Kohl, JD, LLM

Senior Wealth Adviser & Principal, The Colony Group

Robert P. Kohl is a senior wealth adviser and a principal at The Colony Group. He provides comprehensive wealth management services to clients, with expertise in the areas of cross-border tax and insurance considerations, investments and private equity. He has extensive experience working with athletes transitioning into retirement and helps his clients develop wealth preservation strategies, including budgeting, cash flow analysis and philanthropic planning.

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