If you live with a romantic partner and don’t have plans to marry, it may be beneficial to explore whether a cohabitation agreement may be beneficial. This legal document outlines the rights and responsibilities of both parties.
We’ve consulted with three experts who shared the potential benefits of a cohabitation agreement.
What Is a Cohabitation Agreement?
A cohabitation agreement is commonly used by couples who choose to live together without getting married.
“Whether for personal, financial, legal or other reasons, (a cohabitation agreement is created) to establish the rights and responsibilities of both parties regarding various aspects of their living arrangements and potential outcomes in the event of a breakup or other significant life event,” Michele A. Moreschi, a family law attorney with Dussias Wittenberg Koenigsberger, LLP in Chicago, said in an email.
Typically, a cohabitation agreement addresses issues such as property ownership, financial responsibilities and division of assets in the event of a breakup and any other important matters that the couple wishes to clarify, Moreschi said.
“It’s a way to establish expectations and protect both parties in case the relationship ends, or other unforeseen circumstances arise,” she added.
Furthermore, cohabitation agreements can help prevent disputes and provide clarity and security, similar to a pre- or post-nuptial agreement for married couples, Moreschi said.
[Read: Should You Get a Prenup?]
“However, it’s important to note that the legal enforceability of cohabitation agreements can vary depending on jurisdiction, so it’s always advisable to consult with a legal professional if you are considering the possibility of entering into one,” she added.
When and Why Should Someone Have a Cohabitation Agreement?
Moreschi said with more people choosing to not enter (or re-enter) into a marriage, cohabitating with a partner is no longer an unusual circumstance.
It’s also important to point out that in jurisdictions that do not recognize common law marriages or do not have other statutes relating to the rights of cohabitating couples, cohabitation alone typically does not implicate legal rights, remedies and responsibilities afforded to married couples, she said.
“The result is uncertainty and a lack of security for the cohabitating couple,” Moreschi added.
For a couple who decides to live together and purchase a home or other assets together without marrying, a cohabitation agreement can help them to contractually set expectations between them.
Examples include outlining contributions toward expenses during the relationship; clarifying responsibilities for debts, ownership and division of assets in the event of a breakup; determining of who will remain in the shared residence if the relationship ends; and even who will receive financial support in the event of a separation, Moreschi said.
“The cohabitation agreement thereby provides clarity and security to unmarried couples who choose to reside together,” she added.
What Should Be Included in a Cohabitation Agreement?
Research from Ameriprise Financial highlighted areas in which couples need to align financially.
According to Marcy Keckler, senior vice president of financial advice strategy and marketing at Ameriprise, these are some essential points to cover in your cohabitation agreement:
Estate planning. Estate plans are important considerations for everyone, regardless of your age and level of wealth. “There’s a point in the future when all of us will need an estate plan, which really is about specifying what your wishes are for your legacy,” Keckler said in an email.
In your cohabitation agreement, outline your estate plan. Include decisions around health care directives, end of life care, intentions for the care of any children or pets, plus inheritance plans for any financial accounts, insurance policies and property, she said.
[Read: Estate Planning Tips to Keep Your Money in the Family.]
Arrangement of financial accounts. Decide whether you want to have any money in a joint account or if you’ll maintain separate accounts.
“One-in-seven (14%) primary respondents in our research had an account their partner doesn’t know about,” Keckler said. “If it’s important to you to have separate accounts to pay for discretionary expenses or gifts for your partner, communicating about and aligning on an arrangement for your financial accounts can help avoid any possible feelings of resentment down the road.”
Support for family members. Nearly three-quarters (72%) of couples in Ameriprise’s survey are supporting adult family members financially.
“If you are providing funds in care of aging parents, young adult children, or both — or, if you intend to do so in the future — have a thoughtful discussion with your partner about how the support fits into your overall financial picture,” Keckler said. “Open and transparent communication can help you align your priorities as a couple both today and in retirement.”
Retirement saving and planning. Discuss how you will save for and prioritize funding your retirement. If you are close to or in retirement, align on how much you want to spend in key categories, Keckler said.
What Is the Legal Scope of a Cohabitation Agreement?
While marriage provides spouses with certain legal rights, those rights do not automatically apply to unmarried cohabitants, according to Patrick Hicks, general counsel at Trust & Will. “A cohabitation agreement can be important to establish rights and responsibilities between cohabitants, but it has limited effect with third parties,” Hicks said in an email.
Hicks said pairing a cohabitation agreement with an estate plan closes that gap and ensures the cohabitants have established rights and responsibilities not just between themselves but for third parties as well.
He also said that a power of attorney and a health care directive are essential documents to accompany a cohabitation agreement.
[READ: How to Set Up a Power of Attorney.]
“A power of attorney gives one person the legal authority to act on behalf of another,” Hicks said. “A health care directive (also known as a living will) allows a person to specify their wishes for medical care in the event that they are incapacitated.”
In cases involving children, the importance of estate planning is magnified.
“Without proper documentation, legal rights concerning the child’s care and guardianship may be lacking,” Hicks said.
This is of particular concern if the child is only the legal child of one of the cohabitants — a cohabitation agreement may not be sufficient to provide the nonparent with legal rights to speak with doctors or make medical decisions should anything happen to the other parent or child, he added.
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What Are Cohabitation Agreements and Who Are They For? originally appeared on usnews.com
Update 05/29/24: This story was published at an earlier date and has been updated with new information.
