What is a Cohabitation Agreement?
A cohabitation agreement is an arrangement between two people (usually a couple) who have lived together as unmarried partners and want to define the financial and legal responsibilities in their personal & business relationship. In general, most cohabitation agreements are done by couples who are not legally married, although they can also be entered into by those who are legally married when attempting to separate their finances & legal relationships from one another. In New Jersey, where a large number of unmarried couples cohabitate, cohabitation agreements are becoming more common . Generally, couples prepared to enter into such contracts do so because they want to avoid the complicated discoveries that can occur when a couple decides to separate while living together. Further, many who enter into cohabitation agreements are doing so as a means of protecting either or both partners financial interests & business interests should they separate. A well drafted cohabitation agreement can minimize risk & the potential for protracted litigation between the parties if the cohabitating relationship fails.
Cohabitation Requirements in New Jersey
The legal requirements for a cohabitation agreement to be valid are relatively straightforward under New Jersey law. First and foremost, the agreement must be signed by both parties. Importantly, however, these agreements do not need to be signed in the presence of witnesses to be enforceable, which distinguishes them from post-nuptial agreements with regard to witnesses. Essentially, a cohabitation agreement serves the same function as a pre-nuptial agreement would for a legally married couple.
While it is not mandatory, it is in your best interest to have cohabitation agreements drafting and/or reviewed by an experienced New Jersey family attorney. Not surprisingly, it is also considered best practice to have the document notarized.
In other words, the more formalities and document management that are completed in the drafting of a cohabitation agreement, the better. This is one practical measure that can strengthen the enforceability of a cohabitation agreement.
Main Provisions of a Cohabitation Agreement
When entering into a cohabitation relationship, the primary purpose of an agreement is to ensure that the parties and their financial arrangements are very clearly delineated. However, in the event that a couple is not entering into a cohabitation relationship, the primary purpose of a cohabitation agreement is to protect the parties’ future interests if they should separate.
There are several significant components to a cohabitation agreement. First, each party to the agreement should provide a full and complete disclosure of their respective assets. Once the parties have a full and complete disclosure of all assets, then they can negotiate as to what each party’s rights would be in the event of separation.
Some of the key terms in a cohabitation agreement would include designation as to what property will be considered separately owned by each individual and which property will be jointly owned. Additionally, the agreement should set forth the terms for how property owned jointly will be equitably divided. As with a prenuptial or a post-nuptial agreement, the cohabitation agreement should also address how property acquired during the period of the cohabitation will be treated if the parties are unable to agree as to what to do with an individually-owned item. In addition, a cohabitation agreement should address the parties’ respective rights in the event of death. There are some basic terms which should be included in a cohabitation agreement, these terms include provisions setting forth the following:
In addition to the above property designation, the owners of the property may want to provide for the right of continued residency in the event of death or separation. Cohabitation agreements are a great tool to provide your individual rights in the property owned by the parties. A well-drafted cohabitation agreement will provide the parties with a very clear understanding of the terms of ownership of property and in the event of separation an equitable division of same.
Reasons to Consider a Cohabitation Agreement
The primary benefit of a cohabitation agreement is certainty. It facilitates clear understanding of the parties’ rights and obligations and allows them to avoid disputes over such issues. Assuming that the agreement is negotiated in good faith and meets the elements of a valid contract, the agreement will be enforceable even if the agreement is not likely to be enforced by the court in an equitable distribution proceeding. For instance, in order to fulfill the statutory obligation of equitable distribution of assets in a divorce proceeding, the court will enforce property agreements between parties before they are married. Such agreements should be conscionable. At a minimum, a conscionable agreement requires that entry into it does not render one party incapable of subsisting.
A cohabitation agreement may also prevent the applicability of palimony lawsuits which were declared non-existent by the New Jersey Supreme Court in the well publicized case of Maeker v. Ross, A-32-18 (June 26, 2019).
Reaching a cohabitation agreement might also serve the additional purpose of protecting asset value for purposes of equitable distribution. For example, if one party owns a business prior to entering into the agreement and that business and other assets were to appreciate in value during the cohabitation period, but the agreement provides that each party will retain their respective assets in the event of separation, that appreciation might be protected from equitable distribution claims raised by the other party in a later divorce action . If the agreement specifically addresses issues such as alimony, child support and custody, it may also preclude the parties from bringing those claims in the event of a future break in the relationship.
It is important to note that in this context, the primary concern is that a prospective agreement imposing greater obligations on one party than is provided for by statute could be deemed conscionable.
When it comes to a potential or actual death of either party, such an agreement can be invaluable. For example, pursuant to the New Jersey laws of intestacy, without a will either party’s assets may pass to their descendants or to the state if they have no descendants. If the parties do not have children but they intend to leave their assets to one another, a cohabitation agreement may serve to assure their intentions as it can be entered into before the parties have married or within the lifetime of either party. It can provide for a set distribution of assets, allow the other party a right of first refusal to purchase the property of the other, or provide other rights to make sure that the intended distribution occurs. By way of example, a cohabitation agreement may provide that an individual partner in a long-term relationship leaves his or her assets to the other if they should die without a will or that the survivor has a right to occupy the deceased partner’s residence for a certain period of time.
Drafting a Cohabitation Agreement
How to Draft a Cohabitation Agreement in NJ
Before drafting a cohabitation agreement, parties should meet with an attorney to ensure the terms of the agreement are legal and enforceable in the State of New Jersey. An attorney will include points relating to the names, status of each party, and date of a cohabitation agreement. Afterward, the terms involving property matters, such as ownership, distribution, and appreciation/depreciation, of all real and personal property should be spelled out. Further, allocation of personal property and debts between parties should also be addressed in the agreement. Issues about any joint bank accounts, credit cards, and maintenance of payment responsibilities for bills should also be included in the document. The requirements of the agreement should be outlined at the beginning in order to give it the legal authority it needs in the event of a disagreement between partners. Important information such as child parenting time and decision-making should be included if the situation arises.
It is important to periodically review a cohabitation agreement and amend it as necessary based on relationship or financial changes. When parties decide to marry or divorce, then the issue over the validity of a cohabitation agreement comes into question. Cohabitation agreements may be left unchallenged or may stand up in court. In that case, the courts may apply equitable principles in the same way they would in a divorce proceeding. If review of a cohabitation agreement is necessary, then couples can meet with a family law attorney to determine if the contract should be amended.
Common Misunderstandings
There are many misconceptions about cohabitation agreements in New Jersey. Many people think that such an agreement is only for wealthy couples, when, in fact, that is not the case. Others believe that a cohabitation agreement is no different than a prenuptial agreement. However, that simply is not accurate either. With a cohabitation agreement , you can protect your assets and income in the event of a break up. You do not have to be rich to want to protect your hard-earned assets. A well-written cohabitation agreement will recognize both your rights and obligations. Such agreements are similar to pre-marital agreements in some respects but also with notable differences. That said, many who enter into these agreements (owners of businesses, large estate owners, actors, entertainers and celebrity individuals) are generally wealthy have much to protect; however, any couple can use and benefit from a well-drafted cohabitation agreement to legally protect their assets.