In the last issue, we talked about the potential pitfalls of living together if you’re not married. (There are pitfalls even if you are, but that’s another topic altogether.) In this column we’ll talk about things you can do to protect yourself and your assets in the event that a relationship ends.
As I noted in the previous column, it may seem a bit unromantic when you are in the midst of the excitement of living together to focus on the financial or business aspects of a relationship, but unfortunately, I’ve seen what happens when couples don’t take care of these issues. Trust me, you don’t want to end up in costly and lengthy litigation. In any relationship, clarity is a benefit and provides a strong foundation for growth over time. If you set yourself and your partner up with honesty and respect for one another and an appreciation of what you each bring to the relationship, that’s as important as your romance.
The first thing you’ll want to do is create a clear, written partnership agreement. You’ll want to review it with a lawyer to ensure that it’s binding and enforceable. This will cover things like assets each party brings into the relationship, rights and responsibilities of cohabitation, and how mutual assets will be divided should the relationship end. You can update this document as needed and circumstances change if, for example, there are children, and you want to provide for them. An important consideration is the relatively recent development as to how to deal with pets in a breakup. There are reports of couples spending thousands of dollars to litigate who gets a pet after a relationship ends, including visitation rights. These and other issues you may not be thinking about at the outset could come back to bite you (pun intended) later on.
The two most important areas for you to have absolute clarity are real property and finances. If one party owns real estate and is the sole source of funds to purchase and support that property, the other party should not be put on the deed. If the relationship ended, the other party could bring a partition proceeding and be awarded half the property even if they had not contributed a cent. (Issues of survivorship and estate planning will be addressed in our next column.) If there are going to be monetary contributions toward the mortgage on the property, the owning party should create a lease for the other party so that it’s clear any such payments are rent and not towards an ownership interest. In addition, the parties should also document all expenses paid to maintain or renovate the property with a clear understanding in writing that such contributions do not create an entitlement of ownership. Similarly, shared ongoing expenses, such as utilities, should be well-documented.
You may also want to consider how to handle “in-kind” contributions. For example, if the non-owning partner does a lot of work on the house (improvements rather than maintenance), you’ll want to consider how to value and account for that. In one breakup case I was involved in, the non-owning partner claimed that he was owed for cleaning and caretaking while the owning partner was working in his career. Ultimately, this argument was rejected because the non-owning partner benefitted from the maintenance, and that effort would be expended in any living situation. Though this might seem obvious, it’s the type of argument a lawyer might make in a contested break up.
As far as finances are concerned, over and above what you stipulate in your partnership agreement, it’s a good idea to keep separate bank and investment accounts and keep good records. Many couples create a joint checking account for shared expenses. Each party can contribute the same amount, or you can provide otherwise in your partnership agreement. Make sure that you keep accurate records of what that joint money is used for and clearly stipulate in your agreement the implications of such contributions.
Many LGBTQ+ couples also work together. This is another area that requires a clearly structured agreement. For example, if one partner owns a business and the other works for it, you’ll want to create an employment contract or partnership agreement that clearly defines the ownership arrangement. This is to avoid claims of “constructive trust”. In the marital or cohabitation context, constructive trusts have been imposed when the party seeking this relief has demonstrated a transfer of funds or expenditure of effort, in reliance upon a promise, over and above that which could normally be attributed to the give and take of the relationship. While the mechanism of a constructive trust is not to be employed to bring about a judicially coerced community property law, nevertheless, it is an available equitable device, in actions between former partners, when the requisite elements have been proven.
The goal of all this is not to scare you but to encourage you to go into a life partnership with clear parameters and expectations. As your relationship grows and develops, you may want to make changes, and you can always do that. Still, the process of developing these agreements and safeguards can be beneficial as well, encouraging you to talk clearly and forthrightly about expectations. And that’s a great foundation for a relationship.
—Tedd S. Levine, Esq.