********************************************************** * PROMISES, PROMISES -- AGREEMENTS FOR UNMARRIED COUPLES * ********************************************************** (c) COPYRIGHT 1984, 1986 Dorothea Kaplan All rights reserved INTRODUCTION BY PAUL BERNSTEIN, SIGOP, LAWSIG When it comes to legal matters, consumers of legal services are able to engage in a great deal of self-education. The more knowledge consumers have, the less time a lawyer must explain basic concepts. The less time devoted to basic concepts, the lower the legal fees. The purpose of this presentation by Dorothea Kaplan, an Illinois lawyer writing for Illinois citizens, is to introduce a particular topic to the public, to attempt to educate the public as to concepts, principles and ideas, but NOT to render legal advice. The issues raised in this article are serious and those who may wish to consider a document or documents in this area are well advised to consult competent counsel. Discussions of the concepts presented in this article are invited and can be held on a Source Bulletin Board or in Parti. The education presented by this article and others in this series should allow informed consumers to reduce to a minimum the costs and expense of having counsel assist in such matters. THE NEED FOR AN AGREEMENT BETWEEN UNMARRIED COUPLES Promises exchanged between people who marry are different from those of people who cohabit. Certain property rights automatically arise upon marriage that will never exist for cohabitants. These marital property rights include the right of inheritance, the right of property ownership no matter which spouse funded or holds title to the asset, and the right to financial support both during, and often after termination of the marriage. It is the exchange of promises dealing with the alternation of the state enforced marital property issues that are fundamental to a pre-nuptial agreement. On the other hand, the cohabitation agreement creates rights and obligations between persons having no legally-recognizable relationship where these rights and obligations would not otherwise exist. PROTECT YOURSELF! THAT'S THE MESSAGE OF THIS ARTICLE If this article has a message, it's protect yourself, protect yourself protect yourself! Whether you are a mature woman setting up housekeeping with a pensioner or a young adult in the throes of your first live-in experience, the ready to use Cohabitation Agreement, with explanations, printed here, removes potential areas of economic conflict or even disaster that can throw a whammy into an otherwise blissful relationship. Essentially, the Living Together Agreement sets up a clear blueprint for dealing with the parties' legitimate financial concerns during cohabitation. Married persons have an agreement written for them by state law, but cohabitating persons must fend for themselves, developing their own rules against the backdrop of basic contract law. There are five general areas of interest to be addressed in the Cohabitation Agreement: AREAS OF INTEREST TO BE ADDRESSED IN THE COHABITATION AGREEMENT 1. Ownership of previously held property. 2. Ownership and source of funds for property purchased during cohabitation. 3. Income allocation for mutual use. 4. Source of funds for monthly living expenses. 5. Division of jointly owned property and debts upon termination. Because this Agreement can be so flexible, older persons wishing to preserve independent property rights can easily do so, while younger persons wanting to pool their resources, can achieve this desired end. Cohabitation Agreements also serve the compatible purposes of keeping some property separate while combining the ownership of other assets. Maximum legal protection is available once policy decisions regarding property rights and obligations are made. Even protection for unborn children can be provided for and should be by the younger cohabitators. WITHOUT AN AGREEMENT IN WRITING, THERE ISN'T MUCH HELP FROM THE LAW Most states, decades ago, abolished common law marriage. And despite Michelle Triola Marvin's lukewarm stab at gaining palimony from Lee Marvin based upon an implied contract (where the contract is neither written nor oral but implied from the parties actions) and unjust enrichment (where to allow Lee Marvin to gain monetarily from services performed by Michelle during cohabitation would be unfair and unjust), most courts will not imply marital property rights, in a disintegrating live-in situation. Where the parties have not previously given these rights to one another in a written cohabitation agreement, courts will not give or create marital property rights for cohabitators, for to do so would be to resurrect common law marriages. Therefore, it is contract principles, not marital relations laws, that give courts the legal reasons to enforce cohabitation agreements. EXAMPLES OF WHAT CAN HAPPEN WITHOUT A WRITTEN AGREEMENT Other examples, besides the above Michelle Marvin one of persons who have failed to memorialize their live-in arrangements in a cohabitation agreement and lost out in court battles, are the following: Example one: Victoria lived with Robert for 15 years, helping him through dental school and bearing three children with him. When the relationship ended she asked a court for a share of the parties' property and spousal support. She was given no property and no portion of Robert's $80,000.00 a year income for her support. Because Robert acknowledged paternity, child support was awarded. (A recent New York State Decision may affect this example, but that is just in New York) Example two: John, while still married to Sara, entered into a cohabitation relationship with Ethel which lasted six years and bore two children. During the six year period, a business was purchased by John and was worked by John and Ethel. John died abruptly in a plane crash while still cohabitating with Ethel. Sara (his wife and natural heir) received the business, Ethel received nothing. Since there had been no paternity acknowledgment, Ethel and John's two minor children could not receive social security benefits nor share in the proceeds of the successful lawsuit resulting from the plane crash. Example three: Barbara and Lee lived together for 17 years. Barbara worked and contributed financially to the purchase of real estate which Lee owned in his name alone. When the relationship ended, Barbara was forced to bring a law-suit to recover her contribution from Lee. Barbara won the lawsuit, but her legal fees exceeded the amount she recouped. If any of these persons had been able to rely on a valid Cohabitation Agreement, the outcomes of their stories would have been different. As long as the Agreement deals only with personal or real property issues and follows the well worn principles of contract law, the courts will uphold their provisions, even though an illicit sexual relationship supplies the contract's flavoring. CONTRACT RULES THAT MUST BE USED ENSURES FAIRNESS TO BOTH PARTIES FIRST RULE: CONSIDERATION. The first rule is that there must be consideration or something of value given and received by each contracting party. That something of value can be a promise of any type, except a promise of sexual services. Sexual promises render the Agreement one for prostitution and thus invalidate it. Acceptable types of consideration include mutual promises to pool incomes or keep them separate, promises to share expenses or keep them separate, and promises to own property together or maintain independent ownerships. But never can sexual or even personal services be promised. SECOND RULE: FULL DISCLOSURE The second leg of the Agreement's validity is full disclosure of assets, debts and income between the parties. This is required so that each person knows and is fully aware of the other's financial situation, and is nonetheless still willing to be bound by the terms of the Agreement. THIRD RULE: ABSENCE OF FRAUD OR MISREPRESENTATION Thirdly, there must be absence of fraud or misrepresentation inducing one party to enter into the Agreement. If, for example, one partner tells the second he/she is employed and the second partner relies on this representation to enter into the Agreement and she/he then turms out to be unemployed, a fraud has been worked on the second partner. The terms of the Agreement are unenforcable against the second partner. FOURTH RULE: NO UNFAIR ADVANTAGE TAKEN Finally, the Agreement is also unenforcable where one party because of his/her superior bargaining position takes unfair advantage of the other. The Agreement's promises must voluntarily be made by each party. Because cohabitating partners, unlike married persons, must create their own set of property rights and obligations, they are free to invent all sorts of terms between one another, as long as they stick to the above described rules. Armed with the above information, the sample form printed below, and a knowledge of your mutual financial management decisions, this Agreement can be written without a lawyer. But keep in mind, should you have special needs that deviate from those expressed here or specifc problems not covered below, these should be check out with a lawyer before being incorporated in the Agreement. The sample Agreement below is intended to educate and provide a guide for those persons desiring a Cohabitation Agreement. It is not meant to encourage or discourage any person from entering into a live-in arrangement with someone of the opposite sex, which may be in contravention of the criminal law in some states. SIGOP'S COMMENT (The following agreement was drafted in Illinois and the laws of your state may be different. It is recommend by the LAW SIG that you consult an attorney in the final preparation of any document having such significant legal ramifications. The opinions expressed in this article are those of the author and not the SIGOPs of the LAW SIG) COHABITATION AGREEMENT BETWEEN ____________________________________ and ______________________________________. INTENTION OF THE PARTIES A. The undersigned parties live together (or intend to live together) are (are not) married as of the date of this Agreement. B. This Agreement shall identify the parties' rights and obligations between one another with regard to all financial matters including but not limited to personal property, real property, debts and living expenses both previously acquired and those that may accumulate during the cohabitation relationship. C. Each party has read this Agreement and understands that all its terms are binding on both parties. D. This Agreement cannot be midified in the future except in writing by the mutual consent of both parties. ARTICLE I (PREVIOUSLY OWNED PROPERTY AND DEBTS) 1. Each party has disclosed to the other, all the properties, assets, and debts owned and owed by each and has informed one another of his/her income earned and unearned from all sources. It is agreed that shall exclusively WOMAN own and control the property, assets, and debts specifically described in Schedule A and that shall MAN exclusively own and control the property, assets, and debts specifically described in Schedule B. (ALTERNATIVE ARTICLE I) 1a. It is agreed to that certain assets, property and debts previously owned and owed by the parties shall become the jointly owned property of the parties. Those items are that shall be jointly owned are specifically described in Schedule C. All Schedules are attached to and made a part of this Agreement. COMMENT FOR ARTICLE I AND ALTERNATIVE ARTICLE I ** Paragraph 1 in Article 1 sets a tone of openess for the entire agreement by affirming that there has been full disclosure of property, assets, debts and income between the parties. ** In the remainder of Paragraph 1 and in Alternative Paragraph 1a, it must be decided whether previously owned assets, property or debts will be separately or jointly owned by the parties. ** Schedules A and B indicate the partners' decisions on separately owned property and Schedule C reflects which property will be jointly owned. ** Real property that is included on any schedule should have a legal description. All schedules should be attached and made a part of the Agreement. ARTICLE II INCOME 2. Both parties agrees that the wages, salary, and other income of each whether earned or unearned from any source whatsoever shall remain the exclusive and separate property of each. ALTERNATIVE ARTICLE II 2a. Both parties agree that the wages, salary and other income of each, whether earned or unearned from any source whatsoever shall become the jointly owned property of the parties, except for the following which shall be the exclusive and separate property of each and is reflected on Schedule A (and/or Schedule B) attached to and made a part of this Agreement. (A) (B) (C) COMMENT FOR ARTICLE II AND ALTERNATIVE ARTICLE II ** Paragraph 2 of Article II envisions each party keeping their respective incomes separate, while the following Alternative Paragraph 2a allows for the pooling of some income and for the segregation of other income. For example, wages could be pooled, but dividend and interest income could be separated. Or, only a percentage of each salary might be pooled while the remainder could be independently maintained. ARTICLE III (USE OF ONE PARTY'S PROPERTY) 3. Both parties agree that shall have full use of the following property belonging to during the life of this Agreement, but that shall acquire no ownership rights therein and that said property shall remain the separate and exclusive property of . (A) (B) (C) (D) COMMENT FOR ARTICLE III ** One partner may as a matter of convenience or habit use the automobile, health club membership, or live in the condo unit owned by the other partner. This paragraph alerts the user, that not withstanding this gratuitous use, no property or ownership rights accrue to the non-owner. ARTICLE IV (MECHANICS OF PROPERTY MODIFICATIONS) 4. The parties cannot orally change separate property into jointly owned property or jointly owned property into separate property without the explicit written approval of both parties. All agreed to changes must be reflected on the appropriate schedules with each party initially being changed. COMMENT FOR ARTICLE IV, NUMBER 4 ** Paragraph 4 in Article IV continues the intent of having separate or partly separate and partly jointly owned property, but respects that there may be future changes that must be made in writing and also changed on the appropriate schedules. 5. All three (or both Schedules A and B) schedules shall be reviewed annually by the parties and amended, changed or supplemented to indicate the true situation between the parties. COMMENT FOR ARTICLE IV, NUMBER 5 ** The annual review, required in Paragraph 5 of Article IV, can be done on the agreement's anniversary date. Changes or modifications are encouraged so that the agreement can stay in tune with the parties' true situation. 6. Each party acknowledges having read Schedules A and B (and Schedule C) and enters into this Agreement fully aware of the extent and nature of what is contained in each schedule. COMMENT FOR ARTICLE IV, NUMBER 6 ** Full disclosure to one another is again recited in Paragraph 6 of Article IV, this time indicating each person's awareness of what items appear on the three schedules (or two schedules, if there is no jointly owned property). ARTICLE V EXPENSES DURING COHABITATION 7. The parties agree that , shall pay for all living expenses and personal expenses of both parties during the cohabitation. Living expenses include but are not limited to the following: A. Mortgage payment or rent B. Real estate taxes C. Homeowners or renter's insurance D. Utilities E. Home care and maintenance F. Food G. Joint entertainment H. Joint travel I. Joint auto maintenance and insurance of automobile(s) Personal expenses include but are not limited to the following: J. Clothing K. Medical and dental expenses L. Medical and dental insurance M. Grooming, haircuts N. Extention courses O. Books, magazines, newspapers P. Entertainment Q. Repairs of solely owned appliances R. Pet grooming and veterarian visits ALTERNATIVE ARTICLE V 7a. The parties agree to share equally in all living expenses and to be solely responsible for their respective personal expenses. The living expenses that shall be shared equally are (same as A-I above). The personal expenses that will be borne by each respectively are (same J-R above). ALTERNATIVE ARTICLE V 7b. The parties agree to share responsibility for the following living expenses in proportion to their respective incomes or as otherwise specifically agreed upon herein. (Same as A-I above). Each shall be responsible for his/her respective personal expenses. (Same as J-R above). COMMENT FOR ARTICLE V, NUMBERS 7, 7a and 7b ** Paragraph 7, and Alternative Paragraphs 7a and 7b give the parties three optional ways of handling their living and personal expenses. The first paragraph assumes one party will be the sole wage earner and thus all living and personal expenses for both. The second option, Paragraph 7a, assumes the partners earn substantially the same and will share equally in living expenses but that each will take care of his/her personal expenses. The third paragraph, 7b, allows for pro rata expense contributions based upon significantly disparate incomes. ARTICLE VI DEBTS DURING COHABITATION 8. Both parties agree that neither shall be obligated for the present or future incurred debts of the other. Each shall maintain his/her own credit and charge accounts and each shall hold the other harmless and pay all costs and fees incurred by the other in preventing or defending against the collation of any debt. The only exceptions to this shall be the following: 1. Joint purchases by the parties involving joint charge accounts specifically opened for joint purchases. 2. Joint overdraft protection where joint checking accounts are maintained for payment of living expenses. 3. Joint rental obligation for apartment. COMMENT FOR ARTICLE VI ** The provision covering debts, again maintains a separateness where there will be some division of expenses, and need not be used, where one person is furnishing 100% of both parties' living and personal expenses. ** This provision allows exceptions to the separateness, however, where joint credit is desired for joint purchases or a joint checking account is maintained for payment of monthly expenses. If these exceptions are not wanted, simply delete them. ** If one party is amenable to having the other use his/her charge accounts, then specifically list the accounts available to the other person. ** Also, if one person has agreed to pay certain debts for the other, specify these in this paragraph. ARTICLE VII JOINT CHECKING ACCOUNT 9. The parties shall open and maintain a joint checking account for use only in paying monthly living expenses. Each shall make contributions to the account consistent with Paragraph 1 of Article V. Each may maintain his/her own checking account in addition to the joint expense payment account. COMMENT FOR ARTICLE VII ** Where there will be a joint arrangement for payment of living expenses, Paragraph 9 recommends the opening of a joint checking account, each contributing according to the agreement. This does not foreclose the opportunity for each having separate accounts also. ARTICLE VIII CHANGES IN FINANCIAL CONDITION 10. This Agreement pertaining to the parties' living expenses is based on their respective financial condition at the date of this Agreement. Any significant future change in either party's financial condition will require renegotiation of living expense allocation between the parties. COMMENT FOR ARTICLE VIII ** Renegotiation of the division of living expense obligations will be necessary if the financial picture for one party substantially changes during the cohabitation period. Again, the new arrangement must be in writing. ARTICLE IX AQUISITION OF PROPERTY AND ASSETS 11. It is intended that all real or personal property inherited by or gifted to one party during cohabitation shall be the sole and exclusive property of that party. 12. All personal property purchased or acquired exclusively with one party's funds during cohabitation shall be the sole and exclusive property of that party (or be the joint property of the parties). 13. All personal property purchased or acquired with the joint funds of the parties during cohabitation shall become the joint and mutually owned property of the parties (or shall be owned by the parties jointly and mutually in proporation to eachs financial contribution). 14. All real estate purchased by the parties with joint funds during cohabitation shall be owned by the parties as tenants in common, and not as joint tenants (or in joint tenancy with rights of survivorship and not as tenants in common). If the parties own property as tenants in common, ownership rights shall reflect the pro rata contribution of each party. (If owned as joint tenants with rights of survivorship, ownership rights have to be equal under the law notwithstanding the pro rata contribution of each party). COMMENT FOR ARTICLE IX ** Paragraph 11 specifies that all real or personal property inherited by or gifted to either of the parties shall be that party's role and exclusive property. ** Paragraph 12 recognizes that if one person buys personal property (auto, television, stock) that person will be the exclusive owner unless the purchasing partner directs that the asset be jointly owned by the partners. ** When joint funds are used for joint purchases, the partners will be equal owners, unless a pro rata ownership is preferred. ** Ownership of real property can be either in joint tenancy with rights of survivorship (this allows the survivor to inherit the decendent's heirs and not the other tenant in common to inherit his/her share upon death). Ownership rights can be disproportionate when title is held as tenants in common, but not when held as joint tenants. Both options are noted in this paragraph. The option not desired, must be deleted. ARTICLE X CHILDREN OF A FORMER MARRIAGE 15a. Because has a child(ren) from CUSTODIAL PARENT a former marriage residing with the parties, it is necessary to state in this agreement that may not rely CUSTODIAL PARENT upon this agreement to reduce or abate child support payments from his/her former spouse. 15b. All child support payments received by CUSTODIAL from her/his former spouse or social security benefits PARENT paid to 's minor child shall be kept in a CUSTODIAL PARENT separate account and shall not be comingled with any joint funds or checking accounts the parties may maintain for payment of living expenses. 15c. It is agreed that some of the parties' living expenses may indirectly be used for child(ren). CUSTODIAL PARENT'S This does not mean that is assuming COHABITATION PARTNER any obligation for support of 's child(ren). CUSTODIAL PARENT'S COMMENT FOR ARTICLE ** The three paragraphs in Article X take into account that children of a former marriage may live with the parties. Where this is so, the custodial parent agrees here that he/she will not depend upon the agreement's financial arrangements to seek a reduction or abatement of child support, even though some of the cohabitatine parties' living expenses will be used indirectly for the chiid or children's living expenses. ** Also, all funds for the child, be it support or social security benefits received by the custodial parent, should be segregated from the joint accounts maintained by cohabitators for their own living expenses. ARTICLE XI CHILDREN BORN TO COHABITATING PARTIES 16. Recognizing that children may be born to the parties during the cohabitation, , agrees that he MALE PARTNER will execute an acknowledgement of paternity, sign it before a notary and will file same with the Bureau of Vital Statistics in the state of birth within 10 days of the child's birth. 17a. If the parties should terminate their relationship and a child or children has been born to them, each will exercise his/her best efforts to amicably resolve all issues of custody, child support, extraordinary medical expenses, visitation and educational expenses. However, if these issues cannot be resolved amicably, then the parties shall submit resolution of these issues to independent mediation or mediation under the auspices of the state court system. If all above attempts to resolve these issues fail, then the issues regarding the child's custody shall be tried by a court of competent jurisdiction. COMMENT FOR ARTICLE XI ** Here, the male partner unequivocably promises that a paternity acknowledgement and prompt filing thereof will be accomplished. This ensures that the child will enjoy all rights as though the parents were married; social security, inheritance, child support and insurance and/or union benefits should these be available to the father. ** The paternity acknowledgement also paves the way for the father to have custody of the child (should he desire it) in the event the cohabitation relationship is terminated. The only state that will not accept this procedure for establishing paternity is New York, where a Court Order must be obtained. ** Because the parties cannot contract in advance for custody in the event a child or children are born, they have instead asserted their willingness to try and resolve the issues surrounding child custody in an amicable fashion. If this cannot be achieved, mediation or mediation directed by a court system must be used. A trial on the custody issue within the court system is an avenue of last resort. ARTICLE XII TERMINATION OF THIS AGREETMENT 18. Either party may terminate this agreement and end the relationship at any time in writing. 19. If this relationship should terminate, neither party shall be responsible for the support, maintenance, or debts of the other, nor shall either party have any rights whatsoever in the earnings, property or assets of the other. 20. If this agreement is terminated, all jointly owned property (including debts) shall be divided equally between the parties (or in any other manner agreeable to the parties such as a pro rata division according to the respective contributions of each). 21. If the parties cannot agree on an "in kind" division of jointly owned property, then the contested property shall be sold by the parties at market price and the cash proceeds divided equally (or pro rata according to each party's contribution). 22. The party failing to live up to any of the terms of this agreement shall be solely responsible for attorney's fees, court costs and any other expenses of enforcement. 23. The provisions of this agreement shall serve as the only property settlement of the parties regarding property rights, support rights, and homestead rights. 24. Each party has read this agreement and understands each provision. No terms may be changed except by written modifications signed by both parties. DATE: ____________________ SIGNATURE ____________________ SIGNATURE ____________________ The parties and , are known to me and I had witnessed their subscription to this Agreement under oath on this day of , 19 . ______________________ NOTARY PUBLIC COMMENT FOR ARTICLE XII ** The Seven Paragraphs in Article XII all deal with the relationship's termination. Paragraph 18 indicates how it is terminated (in writing), Paragraph 19 eliminates a palimony claim on either side. Paragraphs 20, 21, and 22, direct the division of jointly held property or if the division is contested, the assessment of expenses and costs. Paragraph 23 reaffirms that this Agreement is the only guide for property settlement issues. Paragraph 24 restates the fact that each party has read and understands the Agreement and know it cannot be changed except in writing and signed by both parties. ** The signature paragraph requires both parties to sign in front of a notary who will also sign and seal the instrument. Two originals should be enclosed in this manner, one for each person. CREDITS Dorothea Kaplan is a practicing attorney in Chicago, Illinois. She is also the owner of LAW LAB, Inc., a consumer oriented, legal self-help organization. For more information, contact Law Lab, Inc. at 69 West Washington St. Chicago, Il 60602 312-236-5920