What’s a Cohabitation Agreement?
An agreement between an unmarried couple can be just as binding as a signed marriage contract and resolve the issues of property and finances before moving into a shared home. A cohabitation agreement, entered into before you move in together, is a way to formalize the division of assets and liability for debts.
These contracts are often called "non-marital agreements," "cohabitation agreements" or "PAL agreements," which stands for "partnerships at law." In New York, no particular document is required to be drafted and signed . The contract can be a simple memorandum or a full-blown contract. New York Courts have upheld simple, written agreements, but all should have the necessary elements of a contract: name of the party, the date of the contract, and the signatures of the parties.
Regardless of having such an agreement, however, there is no way to guarantee that the courts will not reallocate the assets to the non-signatory parties in a court action; however, it is less likely. It is, therefore, best to have a written agreement to verify who was entitled to what.
Necessary Ingredients of a Cohabitation Agreement in New York
A cohabitation agreement in New York should be carefully drafted to include a number of key elements. A cohabitation agreement can be as detailed as the couple wishes. A wide range of issues can be agreed upon. The following are some of the most common issues dealt with in such contracts:
Property Division – A cohabitant contract must address how property will be divided upon dissolution of the relationship. It should identify what property is owned solely by one party and what may be jointly owned. It should stipulate procedures for dissipation or payment for shared property upon breakup.
Financial Responsibilities – A cohabitant contract should outline how income and expenses will be handled during the relationship. It should also address what will happen to any liabilities that are incurred during the relationship, as well as how liabilities acquired before relationships should be handled.
Dispute Resolution – It is important to have a conflict resolution mechanism in place should any issues arise during the relationship. The contract should stipulate how mediation, arbitration or other alternative dispute resolution measures will proceed. A well-drafted cohabitant contract can help to protect both parties assets, particularly upon breakup.
Right to Dissolution – Each party has the right to terminate the agreement. The agreement should not restrict the right of either party to separate from the other.
Legal Specifications in New York
Cohabitation agreements in New York are subject to a specific set of legal requirements. If the agreement is not created or executed within strict parameters, it may not be legally enforceable.
New York’s Domestic Relations Law §236B deals specifically with pre-nuptial agreements, post-nuptial agreements, and separation agreements. The first requirement is that it must be in writing and signed by the parties involved. The second requirement is that it is notarized.
The law does not require that the agreement assign property to one party in particular, but to be fair, each party must fully divulge their assets, including potential future income, assets or property. A party cannot hide assets or fraudulently misrepresent them to get out of his or her share. The final requirement for an enforceable agreement is that the terms must be fair to both parties. Each party must sign the agreement without being pressured or coerced.
If the agreement is not created as a contract within these restrictions, it will not be legally binding and may be deemed void. Think of it as similar to a prenuptial agreement.
The Upsides of Creating a Cohabitation Agreement
The primary benefit of creating a cohabitation agreement is the legal protection it affords each party in the event of a breakup. Without a written agreement, assets acquired as a couple during their relationship could be at issue if they separate, including whether the other will get half of the property or a larger or smaller share.
Having a cohabitation agreement also offers financial protection. It can help ensure that the other party will either pay support if they need it or will not have to pay it in the event they need some. It can also clarify financial issues, such as how bills will be paid, taxes and credit cards, and who owns certain property. These can be particularly useful for LGBT couples who may otherwise not have rights to inherit an estate without a will.
One of the greatest benefits of a cohabitation agreement is that it can help maintain relationship stability. When a cohabitation agreement is drafted, the parties have to discuss all these issues and come to terms with how those issues will be handled. While a judge may be required to sort these issues out if the relationship ends, peacefully working through the issues early on may make for a much more amicable breakup.
Cohabitation Agreement Slip-Ups
When entering into an agreement, there are a few common mistakes that a person should look to avoid. One such mistake is agreeing to terms that would leave a low-income earner with no recourse upon a breakup. When determining the percentage of household expenses each person will pay, the couple should not agree to a figure that the lower income person cannot afford to contribute over time. Many people make the mistake of agreeing to a number in the short-term, only to discover long-term that they can no longer pay their expenses and also contribute to payments requested by their partner. Sometimes, this would require party seeking support to seek assistance from the government in the form of public benefits, such as housing assistance or public assistance, which defeats the point of having an agreement. Alternatively, if both parties are purchasing a home together, it is common to agree that finances will be divided fifty-fifty. However, if one partner has much less income than the other, this may not work in reality. This agreement should be revisited after a certain amount of time or upon certain benchmarks , such as the birth of a child.
Another common mistake made that can lead to a voided binding agreement is one that may seem innocuous but is actually fatal to an enforceable contract. An agreement may be voided under contract law if it is ruled unconscionable. Here, the issue arises when one partner has much more wealth than the other and essentially coerces or pressures the other partner into signing an agreement that would provide them a very small benefit upon a breakup.
A cohabitation agreement is a contract, and so must abide by usual contract laws. Some states have specific requirements to their cohabitation agreements. For example, to be valid under New Jersey law, a cohabitation agreement must be in writing, signed, and witnessed by two people. Some states additionally require that the contract be acknowledged.
One last tip about the agreements themselves is that they should be re-evaluated when circumstances change. A couple should not simply draft an agreement and consider the matter closed. An agreement should always be revised when a major event in the life of the couple occurs that warrants an update. This could include substantial changes in income, a decision to get married, or the birth of children.
Cohabitation Agreement Do’s and Don’ts
Cohabitation agreements can be drafted either on a pre-nuptial basis if the parties are preparing to marry or if they are already living together. When drafting a cohabitation agreement, the following steps should be taken:
• The couple meets with their attorney to discuss their intentions and any issues they would like to include in the agreement;
• The couple together discuss and agree on which issues they would like to include in the agreement;
• The couple works out a mutually acceptable draft of the agreement. At this stage they may have discussions with their attorneys separately or together regarding financial disclosures and any other items in the agreement;
• Either the couple or their attorneys prepare a draft of the agreement and circulate it for review;
• The couple reviews the draft and comes up with a final version that they both approve;
• The couple together meets with their attorney again to review the final draft;
• The couple signs the agreement in the presence of a notary public. In New York State, a cohabitation agreement must comply with the Statute of Frauds and be in writing;
• The couple’s notary public notarizes their signatures. A notary may be an attorney, banker or other person who is authorized to serve as a notary public; and
• The couple retains the original signed copy of the agreement and any subsequent amendments.
Cohabitation Agreement vs. Prenup
Cohabitation Agreement
While both a cohabitation agreement and a prenuptial agreement can give future spouses an opportunity to establish the terms of their economic rights, if any, should their relationship end, there are many important differences between the two contracts. Indeed, in New York State and many other states, the law only permits a prenuptial agreement to be entered into between spouses who are contemplating entering into a marriage relationship. A cohabitation agreement, on the other hand, can be written between parties who are merely contemplating living together outside of a marriage and with or without children. In short, the nature of the relationship between the parties is the core distinction between a cohabitation agreement and a prenuptial agreement. To be more specific, a cohabitation agreement contemplates a relationship that is common all over the country but which does not necessitate the formality of a marriage relationship.
Cohabitation Agreement: Remedy and Revise
As with other binding agreements, the New York courts will enforce a valid cohabitation agreement. In the event of a disagreement over the terms of the agreement, or a question of whether one party is complying with its provisions, the action must be brought in Family Court. A list of Family Courts in New York can be found on the Unified Court System website. However, if the agreement does not explicitly state that it is meant to be enforced by the Family Court and the dispute is of a different nature (not related to child support for example), your attorney may petition the Supreme Court on your behalf, under Article 54(6) of the Domestic Relations Law, Section 240. The court will not decide issues of parenting time, custody, residency, or any other issues over which the Family Court has exclusive jurisdiction.
A cohabitation agreement can be altered by both parties with a written and notarized amendment . It can also be set aside if one party challenges it in court, alleging any number of reasons, such as fraud, undue influence, or unconscionably. New York courts will cautiously invalidate contracts; however, contracts which are deemed tainted by fraud or bad faith will be set aside.
The most commonly known remedy is specific performance, where a party requests the Court to order a defendant to honor their agreement. Cohabitation agreements are enforced when consideration – that is, something of value – exists, and the written provisions set forth a clear and convincing expression of the parties’ intent. Specifically, it is necessary to find that both parties entered into the agreement voluntarily and that its material terms are reasonable and capable of performance. With those requirements, courts will uphold them on the grounds of equity, just as they would any other written agreement between two parties, Contract Basics.