What Exactly is a Cohabitation Agreement?
Just as married couples are typically well-advised to enter into a prenuptial agreement before marriage, live-in couples without the benefit of marriage may likewise be well served to enter into a cohabitation agreement. In its most basic sense, a cohabitation agreement is a written contract between two individuals (who are not legally married to each other) providing for the resolution of certain legal rights and obligations of those individuals should they ever separate or break up.
Cohabitation agreements are an important tool for live-in couples in Maryland to consider, as they can provide the parties with a great deal of control over how, in the event of a separation or break-up, issues such as property division, debts, financial support, etc. will be resolved, as opposed to leaving those issues up to the courts to decide (which, arguably, could result in a non-beneficial outcome to at least one of the parties). Cohabitation agreements are similar, in many ways, to post-nuptial agreements (which are agreements that already-married couples enter into to ascertain how various matters will be handled if the couple were to divorce).
Occasionally, cohabitation agreements are also used in order to set up control mechanisms for joint purchases made by the parties (for example , going through a title company or other third-party), so as to prevent one or both of the parties from engaging in "self-help" (i.e., selling or otherwise encumbering property owned jointly with the other party).
Cohabitation agreements can be static in nature, or they can include provisions providing for periodic review of the agreement and updates to reflect the current situation and future expectations of the parties.
Cohabitation agreements generally require the signature and notarization of the parties to be enforceable. If one party to the agreement were to later seek to enforce the agreement’s provisions, they would need to convince a Court that the agreement was entered into voluntarily by both parties, that both parties fully and reasonably understood the agreement and what it provided (or, at a minimum, that they had an opportunity to seek counsel and have their questions answered), that the agreement was fair both at the time it was entered into as well as at the time of enforcement, and that the agreement is in accordance with Maryland law (which requires that property division not divest a former spouse of the right to receive spousal support).
Why Draft a Cohabitation Agreement?
The primary reason why people who are living together sign a cohabitation agreement is to protect their interests in the event their relationship comes to an end or there are changes in their financial circumstances. Although most married couples do not make the distinction, they are really two separate things: (1) divorce and (2) what is going to happen with the couple’s property, debts, and resulting financial situation in the event of separation. This same distinction applies to unmarried couples who enter into cohabitation agreements.
While the law of contracts will generally enforce an agreement made between two parties if certain criteria are met, courts have also been willing to invalidate contracts that allocate marital property in a way that is unconscionable or contrary to public policy. For example, such agreements should allow both parties to retain options for obtaining health insurance or retirement benefits. Specifically, an agreement should address how debts will be paid, how any children will be supported, and whether particular property belongs to one party or would otherwise be divided as part of a future divorce proceeding if the relationship were to become legally formalized.
Importantly, cohabitation agreements should not place additional burdens on parties in the event they later become married. In other words, Maryland courts are unlikely to enforce contractual obligations that extend after marriage. Because cohabitation agreements are private contracts between two individuals, it is important to enter into one with the advice of an experienced family law attorney.
Necessary Components of a Cohabitation Agreement
An enforceable cohabitation agreement in Maryland would have the parties determine each of the following key elements of a well thought out document:
1. Ownership of Property: The agreement should clearly establish the ownership of all tangible and intangible assets that each party brings into the relationship, as well as any assets that may be acquired together during the relationship.
2. Financial Responsibilities: The agreement should outline how expenses will be divided and paid, including but not limited to:
a. How lease or mortgage payments will be paid including utilities
b. Food
c. Gifts
d. Transportation
e. Miscellaneous expenses
3. Separate vs. Joint Expenses: All expenses should be divided as to what represents a shared or joint expense (rent, food, furnishings, etc.) as well as those items to be paid by each party separately.
4. Income: Each party should disclose all sources of income for full financial disclosure purposes. Income should not include the profitable endeavors of either party (independently contracted) where the product of the endeavor is split between two or more partners and the asset is considered joint/owned by all established parties.
5. Alimony: The agreement should establish the amount and duration of alimony, should that ever become an option. (Alimony unlike spousal support can be awarded in a cause of action)
6. Waiver of Rights: An agreement will waive both parties rights to jointly owned property, alimony rules and real property in the event of a dissolution of the relationship.
7. Dispute Resolution: The agreement should also include a process to be followed in the event a dispute arises, or better yet, a mechanism of how to avoid dispute.
Cohabitation Agreements and Maryland Law
In Maryland, cohabitation agreements do not possess special requirements for validity. At least one court decision addressing this area of law shows that a court will not necessarily enforce any provision of a contract between unmarried cohabitors, contrary to what the parties may have intended. That said, parties to a cohabitation agreement must be sure that the agreement itself is voluntary and that the language of the agreement reflects the intent of the parties before a court is likely to enforce it.
Simply put, the law requires any contract, such as a cohabitation agreement to be entered into voluntarily. No agreements can contain provisions in direct contravention with public policy including valid and enforceable prenups. So while couples entering into cohabitation agreements do not need to meet any special requirements, they must ensure that they are entering into an agreement that is both voluntary and lawful.
How to Draft a Cohabitation Agreement
Drafting a cohabitation agreement requires both parties to be able to contract for anything that is not illegal. The parties to an agreement should therefore retain a lawyer to draft the agreement since roommates are not otherwise permitted to hire a lawyer to draft a lease for an apartment or house. An attorney will structure the agreement to meet the specific needs of the parties.
After the cohabitation agreement has been drafted both parties should be given time to review the contract , seek legal advice before signing it, and then be prepared to sign the contract in front of a notary public (not, as in the case of the lease, in front of a lawyer). The notary public is needed to reduce the possibility of forgery.
Common Mistakes to Avoid
Common mistakes to avoid when creating a cohabitation agreement in Maryland include failing to have the document reviewed by an attorney with substantial family law experience, not updating the agreement regularly, and trying to be too informal in the drafting process. In Maryland, common-law marriages are no longer valid. However, unmarried couples may still enter into a cohabitation agreement (also called a separation agreement, partnership agreement, living together agreement, etc.). Besides addressing the terms of separation in the event the couple decides to separate, a cohabitation agreement covers many aspects of relationships for unmarried couples. They can include provisions regarding the payment of bills, use of real or personal property, purchases of real or personal property, child care, and expectations following the breakup of the relationship. Cohabitation agreements generally will not cover the issues arising from a divorce proceeding. Rather, they will address the issues that will arise as members of an unmarried couple are living together or are considering separating. The parties to a cohabitation agreement are not bound by Maryland law to any particular level of disclosure of assets to one another as they will be should they subsequently marry. Therefore, the scope of a cohabitation agreement includes, but is not limited to, all financial aspects of the relationship.
An educated attorney will advise his/her client that the time and energy the client puts into the drafting and negotiation process of the cohabitation agreement may be life-altering. Common pitfalls to avoid when drafting a cohabitation agreement include including a provision for the equitable distribution of property owned by either party at the time of separation. If a provision is included in an agreement that provides for equitable distribution of property, the parties may inadvertently enter into a marriage-like relationship, which may allow a court to consider it a common-law marriage. Alternatively, if the agreement states that there is no equitable distribution of property between the parties, a court may make a finding that may not have been intended by the parties. Additionally, once entered into, agreements between cohabitating parties will end if either party gets married. Cohabitation agreements generally may be modified at any time upon mutual agreement of the parties. If the agreement included the option of equitable distribution, a party may be precluded from seeking equitable distribution from the other party in the event of a subsequent marriage if such option is not included in the parties cohabitation agreement.
Enforcing Cohabitation Agreements
In practice, most cohabitation agreements do not involve large assets of the kind that are often the subject of disputes. Given the nature of the relationship, cohabitation agreements are often limited to clear and defining terms regarding the separation of assets in the event of a breakup.
A cohabitation agreement can also be enforced in Maryland courts, but only some terms are legally enforceable. For instance, agreements regarding child custody and support are typically unenforceable because family law courts will not enforce any agreements that are not in the best interests of the children.
Unlike prenuptial agreements, which are generally enforceable in Maryland both pre – and post – separation, courts only enforce agreed terms between cohabitating partners if they are not illegal, immoral, or fraudulent .
Like prenuptial agreements, Maryland courts will presume that the contract is valid when the terms are part of the divorce proceeding, and the onus is on the plaintiff to prove evidence against the validity of the cohabitation agreement.
In order to be enforceable, a cohabitation agreement must have been entered into voluntarily by both partners, in writing, and signed by both parties. In fact, Maryland courts often assume that the agreement was made voluntarily and place the onus of proof on the plaintiff, who must produce evidence such as a joint bank account, that a legal marriage existed (for immigration purposes), or that each partner had adequate assets that were distributed equitably.
If the agreement terms cannot be resolved amicably, you can attempt to enforce the agreement in a Maryland court to prevent any unwelcome surprises at trial.