Happily-ever-after isn’t a sure thing: the numbers vary depending on who you ask, but the fact remains that a huge percentage of serious relationships end.
When two people are married, their state’s marriage and divorce laws will dictate how their property and obligations are divided. But when a couple is in a committed, but unmarried, relationship, marriage laws don’t apply—even if they live together (cohabit). It’s up to unmarried partners to decide, in advance, how they want to treat each other and their property in the event they split up.
It may feel morbid or faithless to plan in advance, but it’s key to a successful cohabitation arrangement, and it will remove many worries you might have about the unknown.
Organize Your Information
First off, you and your partner should sit down together and, no matter how long it takes, gather records and carefully consider and document all possible legal and financial interests at play in your relationship. For example:
- Make a list of the bank accounts you have, regardless of whether they’re joint or individual. Whose salary and earnings go into what accounts? Which debts or bills are paid out of which accounts?
- Look at your earnings. Who is earning what? Do you have any appreciating assets, like a house or stock holdings? How much have they appreciated before and since your relationship started? If you’re working, how much do each of you make? Are you making more or less since you began cohabiting? If you’re retired or you’ve retired since cohabiting, how much money are you bringing into the relationship?
- Write down your budget. Who is paying for what, how much, and when? Are some of your expenses just for one partner and not the other? Be sure to include your regular household expenses.
- Look at your retirement accounts. Who is contributing what, and to which account? Is one partner contributing to the other’s retirement? How much did you contribute to your own accounts before you entered into your relationship? How much was added afterward?
- List your assets. Sort out when you bought them and how much you paid. Do you own the assets outright, or are you still paying for them? If one of you came into the relationship with property you already owned—for example, stocks and bonds or a house—document when you acquired the assets and how much you paid for them. If you and your partner bought property together after you were already serious about each other, who contributed what, and where did that money originate from?
- If you owe any debts, list those too. Did one or both of you come into the relationship with debts, and have you incurred any new debts together? How much do you owe? Who is paying down the debt right now, and where did you get the money to pay it? Establish a clear financial trail.
- Consider what could happen to you in the event of a serious illness or death. Do you want your partner to have the ability to make medical decisions for you or to administer your estate if you die?
- What does your insurance situation look like? Who is paying for what kind of insurance? Who is named on the policies? If you break up, would you want to pay for your partner to be covered under your policies, or vice-versa?
- If you have children together, how do the two of you think the children should be raised and financially supported? Write down what you agree and disagree about. Because judges make custody decisions based purely on the best interests of the child at the time of the custody dispute, rather than any separate, arrangement the parents may have, your opinions may differ from what a family court will order, but it's still helpful to clarify your thoughts and expectations in advance.
Make a Plan
Talk with your partner and work out how you’ll govern yourself if you break up. Decide how you want to divide your assets and liabilities. Think about not just the obvious issues—like who should live where or who should drive what car—but also the subtle nuances of your situation, like whether and how you would need to change your insurance policies.
Write a Cohabitation Agreement
For this step, it’s best to contact a family law attorney in advance. Bring your lawyer all the documentation you gathered beforehand, and talk over how you’d like the picture to look if you decide to break up later. A good attorney can help you write a legally binding contract, known as a cohabitation agreement, that spells out each party’s duties and expectations in the event the relationship ends. Consulting with a lawyer is an important piece of the puzzle, because there are many formalities associated with preparing a legally binding cohabitation agreement, and if you skip any of them, a court may reject it.
Stick to the Plan
Once you’ve finalized your cohabitation agreement, don’t ignore it. For example, if you start to earn more money, don’t just start spending it. Update your records and your plans to adjust for the increased cash flow, so you can account for the new money and make adjustments to your overall financial plan and your budget. Do your best not to commingle (mix up) your assets and debts beyond what you’ve already discussed.
If your legal or financial picture changes in a substantial way, update your cohabitation agreement to reflect the new scenario.