Personal Finance

Safeguard Your Assets: When to Consider a Cohabitation Agreement

Safeguard Your Assets: When to Consider a Cohabitation Agreement

Examine whether a cohabitation agreement might be advantageous if you live with a romantic partner and do not want to get married. Both parties' obligations and rights are outlined in this legal instrument.
(Photo : by Djim Loic / Unsplash)

Examine whether a cohabitation agreement might be advantageous if you live with a romantic partner and do not want to get married. Both parties' obligations and rights are outlined in this legal instrument.

What Is a Cohabitation Agreement?

A cohabitation agreement is a legal document used by couples who live together without getting married to outline their rights and responsibilities. It typically covers property ownership, financial responsibilities, and the division of assets in case of a breakup or other significant life events. This agreement helps establish expectations, prevent disputes, and provide clarity and security for both parties, similar to pre- or post-nuptial agreements for married couples.

When and Why Should Someone Have a Cohabitation Agreement?

With more individuals opting not to marry or remarry, cohabiting with a partner has become increasingly common. In jurisdictions that do not recognize common law marriages or have specific statutes for cohabiting couples, simply living together does not grant the legal rights and responsibilities afforded to married couples. This situation can result in uncertainty and a lack of security for cohabiting partners.

For couples who decide to live together and acquire assets such as a home without getting married, a cohabitation agreement can establish contractual expectations. This agreement can outline contributions toward expenses, clarify responsibilities for debts, determine ownership and division of assets in the event of a breakup, decide who will remain in the shared residence, and specify financial support arrangements if the relationship ends.

By addressing these issues, a cohabitation agreement provides clarity and security for unmarried couples who choose to live together.

What Should Be Included in a Cohabitation Agreement?

Research from Ameriprise Financial has identified key areas where couples need to align financially. Some essential points to cover in a cohabitation agreement include:

  • Estate Planning: Regardless of age or wealth, having an estate plan is crucial for specifying your legacy wishes. In your cohabitation agreement, outline your estate plan by including decisions on health care directives, end-of-life care, and intentions for the care of any children or pets.
  • Arrangement of Financial Accounts: Decide whether to keep your finances separate or to combine any money into joint accounts. Transparency is key, as undisclosed accounts can lead to feelings of resentment. It is important to communicate and agree on the arrangement for managing your financial accounts to avoid future conflicts.
  • Support for Family Members: Nearly three-quarters of couples provide financial support to adult family members. If you are, or plan to, support aging parents or young adult children, discuss how this fits into your overall financial plan. Open and transparent communication with your partner is essential to align your financial priorities both now and in the future.
  • Retirement Saving and Planning: Discuss your plans for saving for retirement and how you will prioritize funding it. For those nearing or in retirement, it is important to agree on spending in key categories to ensure both partners are on the same page regarding their financial future.

Read also: How Junk Fees Disguise True Prices

What Is the Legal Scope of a Cohabitation Agreement?

Marriage provides spouses with certain legal rights that do not automatically apply to unmarried cohabitants. A cohabitation agreement can help establish rights and responsibilities between cohabitants but has limited effect with third parties. To address this, pairing a cohabitation agreement with an estate plan is recommended. This combination ensures that cohabitants have established rights and responsibilities not only between themselves but also in relation to third parties.

Essential documents to accompany a cohabitation agreement include a power of attorney and a health care directive. A power of attorney grants one person the legal authority to act on behalf of another, while a health care directive (or living will) specifies an individual's wishes for medical care if they become incapacitated.

In cases involving children, proper estate planning is crucial. Without the right documentation, legal rights concerning a child's care and guardianship may be lacking, especially if the child is only the legal child of one cohabitant. A cohabitation agreement alone may not provide the non-parent cohabitant with the legal rights needed to make medical decisions or speak with doctors if something happens to the other parent or child.

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The content provided on is for informational purposes only and is not intended as financial advice. Please consult with a professional financial advisor before making any investment decisions.

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