Rushing cohabitation agreements a recipe for disaster
By AdvocateDaily.com Staff
Daudlin, founder and principal of Daudlin Law, says a properly drafted cohabitation agreement can minimize the chances of litigation while giving couples some certainty over the ownership of any property they brought into the relationship.
But too often, she says parties take a last-minute approach to the agreements and other similar family law contracts.
“I often get calls from people saying, ‘We’re moving in together next week, and we need something drawn up,’ but those are really bad conditions under which to be signing an agreement,” Daudlin says. “There is financial disclosure that needs to happen, and you need to give yourself a reasonable amount of time to have discussions with your partner about what should be included.”
In addition, she says the emotional aspect to these negotiations is one that many couples overlook.
“When you’re drafting an agreement that contemplates the breakdown of a relationship, it’s going to be a trigger for some people, and could even cast doubt in their minds about the viability of the relationship altogether,” Daudlin adds. “It’s a subject that should be approached gingerly, with an open mind, and with the understanding that it’s there to protect not just one person, but both parties.”
While cohabitation agreements can cover anything they own and include any debts that they may be coming into the relationship with, Daudlin says real estate — the most expensive property many people will ever purchase — is frequently the central feature.
“The person who brought it into the relationship will want to have a clear statement that they will retain the benefit of whatever money they put into the property in the event the couple decides to marry after a period of cohabitation and later separates or divorces,” she says. "A property that is owned prior to marriage becomes a matrimonial home after marriage. With that, comes the presumption that the value of that property shared equally between the parties.
“Right off the bat, a property owner risks losing the value of the contribution they made prior to the date of marriage, simply by saying, 'I do,'” Daudlin says. “The smart move is to protect your interest."
“You might also want to consider what happens to the property in the event of a separation, whether the parties marry or remain common law,” she adds, noting that occupancy can otherwise become an issue post-separation.
“We see situations where people have been financially savvy enough to pay down or pay off a mortgage before a marriage later in life, only to be kicked out of their home after a relationship breakdown because they haven’t stipulated their ability to remain an occupant in the property,” Daudlin says.
Other terms in the agreement may deal with the possibility of spousal support, the division of other property, or even account for the calculation of a self-employed party’s income in the event of a split.
“These agreements can get incredibly complex in some instances, particularly if you’ve got someone who has built their own business from the ground up, and has changed or may change the way they earn their income along the way — moving from a sole proprietorship to incorporation, for example,” Daudlin says.
For couples who remain common law, she says the agreements can also be drafted to protect against trust claims.
"Really, a cohabitation agreement is a contingency plan," Daudlin says. "Most things you could contemplate being an issue as a result of the breakdown of a relationship can be planned for and addressed in advance. Planning for the worst-case scenario in the hopes that it never happens, usually makes dealing with it a little bit easier in the event that it does."