Steps to make sure you and your partner are protected
by Jean Chatzky
Wedding season may be approaching, but more and more people are opting not to take the march down the aisle — or at least opting to put it off. In 2009, the marriage rate in the U.S. fell below 50 percent, and it has continued to decline. Partnering up, however, or cohabitating and parenting together without tying the knot? Those ideas have gained more acceptance over the last 10 years.
But marriage is, among other things, a contract, and — like other contracts — it comes with protections, financial and otherwise, says Chris Chen, wealth strategist at Massachusetts-based Insight Financial Strategists. If you’re planning to remain in a relationship without getting married, there are some key to-do’s before putting down cash on an investment like a home or car. We hope you’ll live happily ever after, of course. But you owe it to yourself and your partner to be prepared — just in case. (And note: The guidelines we’ve laid out offer similar protections to married couples when it comes to the worst-case scenario and division of property.)
Have the conversation:
Talking about what would happen if you decide to split up will likely be uncomfortable. But, like the prenuptial agreement I recommend for all couples who bring assets (or kids) to a marriage, by throwing your finances together to make a purchase, you’re making a commitment. You’ll need to discuss the overall arrangements or those of the specific purchase itself: How will you pay for things? Will it be an equal split or depend upon your incomes? Will you make equal contributions to the down payment? And will one of you own more or less of it as a result? Then, you should talk about what happens if things don’t go as planned. Would you sell assets you’ve purchased together, or would one of you keep them? How would you continue to pay for them? Would one of you buy the other out? And if one of you tragically passed away, would you want your portion of the property to automatically pass to the survivor? If you’re not able to tee up a conversation like this, then you’re probably not ready to make this financial move together.
While you’re talking, sit down and put together a general outline of what you’d like to agree to on paper. “Think of it as a term sheet for how you’re going to make this work,” says Josh King, chief legal officer at Avvo, an online legal services marketplace. The next step is getting it in writing in a more official way. You can turn that piece of paper into a legal agreement by using a DIY online legal form or an attorney — more below on which you should choose for what.
If you’re moving in together:
First, talk about who will pay for what every month, how you’ll handle furniture ownership and who will bear responsibility (name-wise) for which utilities. Keeping your own personal bank accounts is a good idea if you’re planning on moving in with a significant other or partner, but since you’re going to have some joint expenses moving forward — rent and utilities at least — you may want to set up an additional joint account. If you’re splitting utilities and/or rent 50/50, you can each contribute that money into the joint account, but if one of you owns the residence, it might make sense to split the cost of repairs and renovations a different way (like 70/30 or 80/20), and that money can come from contributions to the joint account, as well. Again, get those responsibilities in writing. Rocket Lawyer has a domestic partnership agreement available for free here if you’re a first-time user. (The company says that in order to get your first legal form — like this one —for free, you’d make an account, create the document, then sign out once you’re taken to the paywall page. You’d then receive an email giving you prompts to print your agreement.)
If you’re buying a car together:
Buying a car together can get a little more complicated, says Chen. Cars are individually owned by one party, and the person who technically owns it is — on paper — responsible for all of the debt. “There is a moment in a car’s life where the value of the debt is potentially higher than the value of the car,” says Chen. “In that case, the person who doesn’t legally own the car can walk away scot-free.” That’s one good reason why you’ll want to back up responsibilities for this purchase by putting an agreement with your partner in writing. (Another is that if one partner has significantly better credit than the other, it may benefit you both for that person to carry the loan on the car solo — but you’ll want a contract that reflects the equity you both have.) You can use the domestic partnership agreement mentioned above for this, as it also lists out what happens to assets in case of separation. Chen notes that “as the amount at risk increases or the complexity of the decision increases, then you’re probably better off not doing it online” — for example, you could use a DIY online agreement form for buying a car together, while an agreement delineating real estate responsibilities might require a more expert hand.
If you’re buying real estate together:
Unmarried couples are buying real estate together that they want to own jointly can do it one of two ways — either with rights of survivorship or without. The former means that in the case of one partner’s death, the property would automatically go to the other. Talk this through together as part of your initial conversation. And in order to make sure the agreement you discussed verbally is thorough and binding in your state, you have the option of seeking out a family law or real estate attorney. The likely cost for a finished agreement is $500 to $1,500 depending upon where you live, says King. LegalZoom is another viable option in this case. They don’t have this kind of boilerplate form available for download, but they do have personal legal plans available for $72 (for six months). The plan includes a personal consultation with an attorney, who could advise you on this kind of agreement for free and then, for a fee, create it for you (you’d get 25 percent off for going through LegalZoom). After getting everything in writing, for simplicity, create a new, separate bank account that you each contribute to for household expenses (like the mortgage, utilities, garbage, property taxes, maintenance and repairs).