**Interviewer:** I’ve heard that my girlfriend and I can sign a “cohabitation agreement” since we plan to live together but don’t have plans to marry anytime soon. Is it necessary to have an agreement like this? What are the pros and cons?
**Expert:** It’s definitely useful to delve into the details of a cohabitation agreement—it’s beneficial and can help avoid potential issues down the road. According to insights gathered by US News from three experts, here are four key points about cohabitation agreements:
1. **Understanding Cohabitation Agreements**
A cohabitation agreement is designed for couples who intend to live together without getting married. Michele A. Moreschi, a family law attorney at Dussias Wittenberg Koenigsberger in Chicago, explains that creating a cohabitation agreement helps clarify living arrangements and outline rights and responsibilities during breakups or other significant life events. This typically involves matters related to property ownership, financial responsibilities, asset division upon separation, and any other pertinent concerns.
In short, a cohabitation agreement is a way to set expectations and protect both parties in the event the relationship ends or unforeseen circumstances arise. Furthermore, Moreschi points out that these agreements can help prevent disputes and ensure clarity in the relationship, similar to how a prenuptial or postnuptial agreement works. However, the legal enforceability of a cohabitation agreement often varies by jurisdiction, so it’s advisable to consult a legal professional.
2. **When and Why to Sign a Cohabitation Agreement?**
More and more couples are choosing to live together without getting married. Moreschi warns that if you’re in a jurisdiction that doesn’t recognize common law marriages or lacks laws addressing cohabiting partners’ rights, you won’t have the same legal rights, remedies, and responsibilities as married couples. This can lead to feelings of uncertainty and insecurity.
So, if you decide to cohabit without marrying and plan to jointly purchase a house or other assets, signing a cohabitation agreement can help set clear expectations through a formal contract. For instance, the agreement can outline how expenses are shared, define debt responsibilities during a breakup, detail asset division, and clarify who will remain in the shared residence after a separation as well as who gets financial support afterwards.
A cohabitation agreement provides clarity and security for both partners.
3. **What Should Be Included in a Cohabitation Agreement?**
Marcy Keckler, a financial advisor and senior vice president at Ameriprise Financial, outlines essential components to cover in a cohabitation agreement:
– **Estate Planning:** Regardless of age or wealth, everyone should have a clear estate plan outlining wishes regarding their assets. Including estate planning in the cohabitation agreement can be beneficial. It might also cover healthcare directives, end-of-life care preferences, childcare or pet care arrangements, and inheritance plans for various financial accounts and insurance policies.
– **Financial Account Arrangements:** Decide if you want to open joint accounts or keep separate accounts. According to Ameriprise’s survey, 14% of respondents reported having accounts their partner isn’t aware of. If you plan to maintain individual accounts for discretionary spending or gift giving, discussing financial arrangements with your partner can help avoid resentment later.
– **Support for Family Members:** The Ameriprise survey revealed that 72% of couples financially support adult family members. Keckler emphasizes discussing financial assistance for aging parents or young adult children, ensuring that both partners align on how to manage their overall financial situation. This promotes a mutual understanding of current and post-retirement priorities, helping to prevent suspicion and resentment.
– **Retirement Savings and Planning:** Discuss how to save for retirement and prioritize spending after retirement. If nearing or already in retirement, it’s advisable to outline key spending categories and amounts clearly.
4. **Understanding the Legal Implications of a Cohabitation Agreement**
Patrick Hicks, Chief Legal Officer at Trust & Will, states that the legal rights associated with formal marriage do not automatically apply to unmarried cohabitants. While a cohabitation agreement is crucial for defining each partner’s rights and responsibilities, its impact on third parties is limited.
Hicks believes that by combining a cohabitation agreement with estate planning, couples not only clarify their responsibilities to each other but also establish roles for third parties. He emphasizes that, in addition to the cohabitation agreement, having a power of attorney and healthcare directives is crucial.
According to Hicks, a power of attorney grants someone legal authority to act on behalf of another person, while healthcare directives specify someone to execute medical care wishes if the individual becomes incapacitated.
If children are involved, estate planning becomes even more critical. Hicks warns that without appropriate documentation, you may lack legal rights over child custody and care. If the child is a biological child of one partner, it’s vital to include estate planning—otherwise, a cohabitation agreement may not suffice to grant the non-parental partner the legal right to make medical decisions or communicate with doctors regarding the child’s care in emergencies.
