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Unmarried and Living Together? Here are Some Ways to Protect Yourself

Sandra Block recently wrote an article in Kiplinger Personal Finance (April 2015) about the “Financial Pros and Cons of Getting Married Later in Life”. According to the article, the number of adults over 50 who were living together but not married has doubled between 2000 and 2010. According to financial planners, these individuals are concerned that marriage will “saddle them with higher health care costs, wipe out retirement benefits, raise their taxes and disrupt estate plans” and thus avoid marriage.

Cohabitation is a trend increasing in popularity and is not just limited to people over 50. The marriage rate has decreased and adults are getting married at a much older age, if at all.  For those adults who choose to live together without getting married, there are several legal issues that should be addressed.

Unlike married couples, in Virginia there are not similar legal protections for individuals who live together but are not married. Because of this, it is important that the unmarried couple consider whether agreements should be drafted and signed to protect themselves within this arrangement.

As discussed in Ms. Block’s article and expanded upon below, documenting the arrangement, while not the most romantic, is the safest way to go. There are three types of agreement that should be considered:

Will, Durable Power of Attorney and Advance Medical Directive

If cohabitating, you will want to make sure your estate planning documents are updated. In many cases today people are turning to trusts as one of their primary estate planning documents. Speak to your estate planning attorney for the best combination of documents.

Joint Purchase Agreement

A Joint Purchase agreement may be needed when two unmarried people purchase a home together. Whether friends or in a non-marital relationship, the agreement itself identifies things such as what was purchased, how much each person paid, what interest each person owes (i.e. 50/50) as well as specifics regarding household responsibilities. Here are some of the issues such an agreement should address:

  1. Interest owned. When the home is purchased, are both parties contributing equally? If not, how will the ownership interest be split? Will it be equal ownership regardless of investment?
  2. Financial disclosures. Even though you may not be technically married, purchasing an investment such as a home with another person does create a marriage like relationship in some ways. A person’s financial skeletons can come back to haunt both parties. Before entering into such an investment relationship, it is recommended that you share disclosures regarding what people owe and to whom. It is pretty likely that if you are applying for bank financing, it will be hard to qualify for a loan if such skeletons exist, but what happens if changes occur after purchase?
  3. Estate considerations. If one of the parties dies, what happens to their interest? Is the other person required to buy him out, or will they become partners with the individual’s family?
  4. Exit options. In the event the relationship ends, how will the parties split? Will the house be sold? Will one party have the option to buyout the other? What about obligations for mortgage payments?
  5. Mortgage payment, insurance and tax payments. Here you will address how much each person will pay as well as when payments will be made. It may be a good option to setup a separate bank account where mortgage and other household related expenses will be deposited.
  6. Monthly expenses. The agreement should address what expenses each person will pay or how expenses will be split. The section can be as detailed or broad as you think necessary.

Co-Habitation Agreement

As discussed in the Kiplinger article, couples that decide to live together and not get married are executing co-habitation agreements on an increasing basis. A co-habitation agreement is a contract between the parties that specifies the duties and rights of each partner during their living together relationship. Many co-habitation agreements will also contain agreements regarding what will happen in the event the parties decide to sever the living arrangement.

The Co-Habitation Agreement can be drafted in lieu of or in addition to the joint purchase agreement described above. This agreement takes things one-step further than just the arrangement in owning a house. The idea behind this agreement is that it outlines the responsibility of each person in the relationship as well as how things will be distributed in the event the relationship ends.

Final Thoughts

People who live together and are not married can have some of the same problems as married couples. In Virginia, the same legal protections are not available. As a substitute, couples can create contracts to address certain issues that may otherwise not be addressed if they were to break up. If you are in such a relationship, it may be a good idea to consider some, if not all of these agreements.

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