All About Cohabitation Agreements
Cohabitation Agreements, or "living together" contracts, are often entered into by unmarried couples living together and buying property together. They are very similar to post-nuptial agreements, which are entered into by married persons, in that they will address the issue of what happens to shared property if the relationship should end.
During domestic relations cases, the issues of property division and spousal maintenance are often litigated. Marriages can be of short or long duration and with or without children. The personal property, real property, and debts of every couple are dealt with by applying statutory and case law (precedent). Notwithstanding your relationship status, unmarried couples have a right to divide their property as they see fit. They do not have to apply statutory and case law precedent to the redistribution of their property and debts and they are not bound by the specific provisions within the statute concerning the amount or duration of spousal maintenance in the event of separation. Whether the entire agreement will be enforced by the Court is up to the discretion of the Court and will be highly dependent on the financial factors involved, and whether the agreement is procedurally legal and substantive fair. This article will discuss the concept behind the intent of cohabitation agreements as they attempt to deal with both of these factors.
A Cohabitation Agreement is a written contract that is executed between an unmarried couple who have decided to take their relationship to the next level and live together, and particularly if they are planning to buy real property prior to doing so. What often occurs is that one person will contribute more to the down payment for the property than the other person, and one person will have significantly more assets than the other. Even something as simple as determining who has the right to a closet may become an issue of contention if the relationship fails. Also, regardless of who paid the closing costs or down payment of the property, if he or she contributed money toward the mortgage, the other person may have an equitable claim to reimbursement.
The cohabitation contract will lay out the ownership rights to the property, the right to share living expenses, how the joint assets will be distributed and the amount of any equitable interest/claim to the property they may have, possible spousal maintenance provision(s) (or not) , and the right to receive medical information from doctors and hospitals if the relationship should end. Although a domestic relationship does not have any standing under the law to give automatic decision-making authority in emergency situations, a cohabitation agreement can give the non-bio parent the right to make those decisions regarding the child, and/or gives the bio parent the right to give that parent-in-law the right to make medical decisions for the child. This is something that cannot be done by simply authorizing the other parent to have access to records, which is an entirely separate discussion. Nonetheless, the thoughtful desire to take steps toward affording the privilege of giving medical decision-making to the non-bio parent is a responsible step in protecting your family, and reflects a sophisticated approach to being a wholistic family unit, instead of just two people living together.
The Agreement or contract can delineate the right to equitable reimbursement of expenses if the relationship dissolves, or it can not. It can also express the right to have joint accounts, or to have separate personal bank accounts. It can share the cost of professional fees for a beneficiary of a trust, or it can not. It can reserve the right for one party to seek maintenance from the other in the event of dissolution, or it can not.
These agreements are extremely important in determining who receives what should a relationship dissolve or fail. Furthermore, it is the only way to lay out any right you may have to receive financial support you otherwise may not be entitled to. To be enforceable, the agreement must be procedurally legal (not entered into under duress, fraud, misunderstanding, etc.) and substantively fair in that the agreement is not so imbalanced that one person’s future is irrevocably harmed by the enforcement of the agreement (see generally Weitzenkorn v. Lesser, where the court invalidated a post-nuptial agreement because the wife’s position was financially and spatially worsened by its enforcement over a longer period of time and to a greater extent than that of the parties’ children).
If the contract is signed after the commencement of cohabitation, there is a rebuttable presumption that the agreement results from undue influence. Further, the agreement shall be signed voluntarily without need for consideration (payment), and that it is in writing and signed by both parties.
The Law Governing Cohabitation Agreements in Colorado
Cohabitation agreements in Colorado are legal, and they are subject to the enforcement mechanisms found in the Uniform Premarital Agreement Act. In short, this means that an agreement made between the two unmarried parties will be enforceable and not subject to the various laws that govern divorce and the transfer of marital property. Cohabitation agreements do not, however, confer any of the rights or responsibilities of a marriage on the parties, nor do they invalidate portions of either party’s currently existing agreements made before they cohabitated.
A clear, unambiguous and uncoerced prenup-like cohabitation agreement will be subject to the same rules as premarital agreements, which means that the courts will usually uphold the agreement even if the parties have subsequently changed their minds about the terms of the agreement. The restriction on unilateral modifications, however, means that a party who has entered into a cohabitation agreement is bound by its provisions unless the other party consents to the changes. Cohabitation agreements are also subject to other legal rules such as fraud or other misrepresentation. If either party is forced to enter into an agreement, that will also invalidate it. Like any other legal agreement, other grounds for not enforcing it include lack of capacity to contract, illegality, rules against perpetuities, violation of the statute of frauds or any other provision of law. Cohabitation agreements are not subject to the statute of frauds as a premarital agreement would be, so they don’t need to be in writing to be enforceable.
Key Components of a Cohabitation Agreement
While each agreement is unique to the parties and their particular situation, there are some essential cohabitation agreement elements every cohabiting couple should agree upon. We suggest you consider including these key components in your agreement:
Financial Arrangements for Living Together – A cohabitation agreement should lay out how you and your partner will share living expenses and how any extra money will be spent. For example, you can agree that household bills (such as mortgage payments, groceries, etc.) will be divided down the middle or, if your incomes are unequal, you could agree to pay a portion of the bills equal to the percentage of your respective incomes.
Property Division of Any Acquired Property – A cohabitation agreement should allocate or specify the ownership interests of each partner in any property acquired during the term of the relationship. This includes the portion of any equity both partners have in a home or rental, furniture, cars, jewelry, and other potential assets.
Spousal Maintenance – While spousal support is common in divorce cases, it is not normally awarded to unmarried couples in Colorado. Your cohabitation agreement can determine if and when spousal support would be paid if your relationship ends. Spousal support provisions can address alimony if you decide to formalize your breakup in the form of a legal separation. It also allows you to agree to maintenance terms in the event of the death of one of the parties.
Dispute Resolution – An important part of any cohabitation agreement, a dispute resolution provision spells out how disagreements will be handled. For example, if a property agreement cannot be satisfied, what steps will you take to rectify the problem. The provision can also include mediation or arbitration as a binding way to resolve disputes.
Why It Makes Sense to Have a Cohabitation Agreement
Despite the fact that our culture has become more accepting of couples living together prior to marriage, there are still many people who believe that cohabitants should have the same rights and responsibilities as married spouses. As stated above, this is not true in Colorado. Themes of equality between spouses and equal treatment based on gender run throughout Colorado Divorce law, regardless of the status of the relationship prior to divorce. One benefit of a cohabitation agreement is that the parties can decide in advance how they want to be treated as it relates to joint property, debts, and obligations before the relationship goes south.
As an unmarried couple enters into cohabitation, they certainly own property together, and have expenses associated with the relationship. Oftentimes, they enter the relationship putting one or the other name on a vehicle or property title. But, what happens to the vehicle or other titled property if the relationship ends? Each party could try to litigate their claim to the property, despite having no legal basis, because they purposely made the decision to place the property in one of the parties names. However, if they decide in advance that the property is, for example, owned 60% by Person 1 and 40% by Person 2, then they have an agreement as to how the property would be divided in case of a split. They won’t have to spend the money on an attorney to litigate a property dispute.
In addition to protecting property, a cohabitation agreement protects both parties from bad faith attempts by either party to manipulate the way they share expenses. For example, if parties agree that they will divide groceries 70/30, but one then asks the other to pay for 100% of groceries under the premise that they only need to eat food at home sometimes, and the other parties’ needs are so much less than their own that they don’t even need to eat at home anymore, then bad faith may be present. A cohabitation agreement provides clarity as to how daily living expenses will be split, as well as future expenses.
Pitfalls to Avoid
Common mistakes to avoid:
Omitting financial disclosure: Failing to disclose all assets and income will doom even the best-written agreement.
Including waivers that are illegal: Even though partners are free to decide the parameters of their relationship, the law will not recognize provisions that are against public policy. For example, a provision that includes an indemnification if a partner cheats is probably not enforceable.
Not following statutory requirements for spousal contracts: While the law allows couples to decide relationships issues for themselves , the law requires that both individuals follow certain statutory requirements for spousal contracts. Your agreement may not be enforceable if your contract does not adhere to these requirements.
Failing to revise the agreement: People, careers and relationships change over time. Annual or quarterly reviews of the agreement are helpful in order to make appropriate adjustments.
Choosing the wrong structure: In order to receive a tax advantage, couples may choose to set up a qualified joint venture instead of a general business partnership. However, they may mischaracterize their qualified joint venture as a partnership or vice versa.
How to Create a Cohabitation Agreement
Your cohabitation agreement should include details like how expenses are allocated, property ownership, income and assets, parenting schedules, decisions about your children, and in some cases, issues around pets. You can organize your agreement around a calendar year, month-to-month, or on some other schedule. Here are some examples of the types of provisions that could be included in a cohabitation agreement:
You can create your cohabitation agreement either at or after you’ve formed your cohabitation arrangement. Colorado places no requirement that a cohabitation agreement must be created in any particular time frame. However, the sooner that you can agree on your rules for living together, the better.
To draft a cohabitation agreement, both cohabitating partners should consult an experienced family law attorney. Once you have all the terms and details worked out, your attorney will then prepare a draft of the agreement. You will then review the draft, and make any final changes. Your lawyer can then work to make the cohabitative agreement legally binding.
Altering or Ending a Cohabitation Agreement
Cohabitation agreements in Colorado are not indefinite. Circumstances may arise that provide a basis for the modification or termination of an existing cohabitation agreement. For example, the parties may wish to amend or terminate the agreement based on a life-changing event, such as the birth of a child or a change in relationship status. Alternatively, a party can also seek to terminate or modify the agreement if the other party materially breaches any of its provisions.
In Colorado, Colorado Revised Statute ("C.R.S.") ยง 14-2-804 sets out the procedures to be followed in order to modify or terminate a cohabitation agreement. In the event that a party files an action seeking to modify or terminate the agreement, the court can enter a finding that either the cohabitation agreement in question was unconscionable at the time it was executed or the agreement was based on fraud. However , simply because the court makes this finding of unconscionability or fraud does not even result in an automatic termination of an agreement. Rather, the court in its discretion will go on to consider the equities of the case as well as all of the relevant circumstances so as to determine whether or not it is appropriate to: (1) terminate the cohabitation agreement altogether; (2) terminate only specific portions of the agreement; or (3) leave the agreement untouched. Similarly, the parties may also jointly modify or terminate a cohabitation agreement, and such an agreement is enforceable so long as it is by the terms of the contract. Although the same formalities required of prenuptial agreements do not apply to cohabitation agreements in Colorado, it is important that any negotiated changes to the existing agreement be put into writing and be signed by both parties.