Cohabitation Can Be Costly

(Couple co-habitating.)


Cohabitation can be costly. If you don’t understand the laws of your state — or even if you think you do — you and your partner should use separate attorneys to make a written legal agreement, and follow through on the titling of your property.

This is not a question of morals or social trends. According to the 2011 Census Bureau report there were an estimated 7.6 million opposite-sex cohabiting couples and nearly a million more same-sex couples living together. These couples share rent, homes, mortgages, expenses and children.

But while they may choose to live outside the conventional bounds of marriage, they don’t live outside the conventional bounds of property law, which differs state by state.

The Illinois Supreme Court recently ruled that a couple who had lived together for many years, had three children together and were each professionals were not subject to the “equitable property distribution” laws that apply to married couples in the state. So, despite the fact that the lower-paid partner sacrificed her income to stay home part time with the children, she was not entitled to compensation or equitable rights in property when the couple later split up.

The kicker to this story: The lower-paid partner was a judge! She obviously didn’t know this aspect of the law in her home state.

The case has raised issues in Illinois, which recently modernized most of its marital law. But the modernization failed to address this issue of rights of unmarried couples, despite societal changes.

The lesson here: Know the laws of your state regarding the rights of cohabiting couples and common-law marriages. While some states, such as California, have laws respecting the rights of “domestic partners,” other states still prohibit cohabitation. Michigan and Mississippi have those prohibitions, while Florida struck down its prohibition against cohabitation only a year ago. And federal tax laws do not respect marital deductions and other tax benefits if a state law prohibits cohabitation.

About four years ago, I co-authored a book called “The New Love Deal: Everything You Must Know Before Marrying, Moving In or Moving On.” My co-authors are noted Chicago divorce attorney Gemma Allen and 20-year divorce court judge (and now an acclaimed mediator) Michele Lowrance.

In that book, we strongly recommended creating written agreements before moving in together. And we clearly stated that each party should be represented separately by an attorney familiar with state marital and property laws. We believe agreements represent love and concern, not a lack of trust.

After the Illinois case made headlines recently, I asked Gemma Allen for her latest advice. Here’s what she had to offer:

–First of all, see a local attorney with expertise in this area, no matter where you live — as well as if and when you move.

–Even if a state and its statutes formally recognize property or other rights to cohabitants, still the only safe way to proceed is with a written agreement setting forth the precise terms of the arrangement.

–The best and safest way to proceed in each and every instance is to use joint titling on real estate and bank accounts and boats and planes and art and anything else that allows or follows a titling concept.

–Trusts are also an effective way cohabitants can provide for each other. But to the extent the trusts are revocable, of course, the partners again become vulnerable.

There are a few more things to remember. When you make your written agreement, do not mention the sexual relationship; instead focus on practical and contractual items. Many states do not recognize agreements based on “sexual favors.” (I’m just reporting the facts here!)

Also, even if you work for a company that offers benefits to domestic partners, that does not mean that the property laws of your state also recognize them. So don’t be lulled into complacency because some aspects of your relationship are publicly recognized.

Good attorneys will create documents that cover many tricky situations for unmarried couples. For instance, non-spouses are not automatically able to make health-care decisions — or even hospital visits — unless they hold a health care power of attorney. And a living will can empower end-of-life directives that avoid problems.

While non-spouses can be beneficiaries of retirement plans, some attractive withdrawal options are lost if the couple is not legally married. And for higher net worth couples, some estate tax benefits are lost if the couple is not married. These are all things to consider in your agreement.