While marriage rates have steadily decreased in the last fifteen years, the number of people cohabiting has steadily increased. Our laws address handling issues of property division when ending a marriage; do they address those same issues for people who are cohabiting?
In a marriage, all property acquired during the marriage is classified as marital property – including the income earned by each party (subject to certain exceptions). When a court goes to dissolve a marriage, it sets aside separate property and equally divides marital assets. In this way, parties going into a marriage know the ground rules for property distribution, and if they want to do something different to protect ownership of specific assets, they can do so by entering a prenuptial agreement.
In a cohabitation, assets acquired follows standard laws governing property. So, for example, if A moves in with B and they live together in a home owned by B and with a mortgage solely in the name of B, if A lives with B under this arrangement for four years and every month contributes half the mortgage before the relationship ends after the four years, A has no immediate remedy for the equity in the home or the share of the mortgage because A had no ownership interest. Equitable principles like unjust enrichment might help A recoup some of the funds, but without a definite contract, A could be out of luck. Had the parties purchased a home together but contributed unequally to the down payment, the parties still own equal shares of the property. When the parties break up, neither party has a greater right to toss the other out of the home, and it would require a partition action to address property interests.
As these two examples alone illustrate, much can happen financially during cohabitation that, at the end of the cohabitation, could leave one party in a financial bind with regard to certain assets, and without the easy protection that our dissolution of marriage statutes provide.
We suggest that before couples cohabitate, they discuss what they would like to do with separate assets and how to share joint assets financially, and what would happen to all of these assets should cohabitation end. After getting a sense of their views, the couple should meet with an attorney and reduce their ideas to a specific contract, commonly called a “no nup” – an agreement that looks similar to a prenup but made in anticipation of cohabitation rather than marriage. In this agreement, couples can address any number of property issues and provide clarity for ownership and division during and after cohabitation. Should the parties marry, they could even provide that these terms become part of a prenup prior to marriage.
While cohabitation may seem more casual and intended to avoid some of the pitfalls of marriage, it still poses the same potential for chaos we see in divorce. The safest way to protect property interests prior to cohabitation is always through a written contract.
If you have questions about a “no nup,” contact us – we can help.