Becoming domestic partners

In California you are eligible for health benefits and other rights by officially registering as domestic partners, (both heterosexual and same sex partners) with the state. Registered domestic partners can be dependants on each other's health insurance.

In the absence of a marriage contract, make sure you think about what will happen if you split up or one person dies. We recently heard about a same sex couple case where one partner died, and the remaining partner had his house sold out from under him by the deceased partner's family. He was not on the title and no formal written agreement had been made. In the absence of specific planning the law was not his friend. It's important to keep track of who owns important possessions for the same reason.

A contract is no more than an agreement to do (or not to do) something. Marriage is a contractual relationship, even though the "terms" of the contract are rarely stated explicitly or even known by the marrying couple. Saying "I do" commits a couple to a well-established set of state laws and rules governing, among other things, the couple's property rights if they split up or when one of them dies. Unmarried couples, on the other hand, do not automatically enter into a contract when they start a relationship. If you want to legally establish how you will own property during your relationship, as well as what will happen if you separate or if one of you dies, you must write out your own rules. (Married couples do something similar when they create a prenuptial agreement.) Your agreement will be legally called a "non-marital agreement"

Preparing a sound living together agreement can help you in a whole host of ways. Practically speaking, your agreement will help you avoid trouble when you mix your money and property, and it will make clear your intentions and expectations regarding property ownership, household expenses and so on. It can also greatly ease the division or distribution of property after a breakup or death. That said, here's an overview of the legal rules and practical concerns you should think about before drafting a contract of your own.

Living together contracts

For the most part, courts and judges -- not legislatures -- have made the legal rules governing living together contracts. The leading court case is the well-known Marvin v. Marvin, decided by the California Supreme Court in 1976. It involved the actor Lee Marvin and the woman he lived with, Michele Marvin. (She used his last name even though they weren't married.) In the court's decision, it set the precedent for the common legal principles governing the right of unmarried couples to make contracts. First, the court ruled that marital property laws do not apply to couples who are not legally married. Then, the court recognized that unmarried couples are here to stay. Finally, the court declared four contract principles:

• Unmarried couples may make written contracts.

• Unmarried couples may make oral contracts.

• If a couple hasn't made a written or oral contract, the court may examine the couple's actions to decide whether an "implied" contract exists.

• If a judge can't find an implied contract, she may presume that "the parties intend to deal fairly with each other" and find one partner indebted to the other by invoking well-established legal doctrines of equity and fairness.

Although the Marvin case directly applies only in California, other states have upheld the application of these principles to contracts made by unmarried partners -- both straight and gay. Depending on the state, however, a court may follow different legal rules. Almost all states now enforce contracts between unmarried partners, although in some states only written contracts will be enforced.

Get legal advice before signing an agreement if it involves a lot of money or property -- or complicated estate planning. This is just common sense, particularly if one partner has substantially more assets than the other.

Also, you should get help if it might appear that one of you has much greater bargaining power than the other. A living together contract may not be enforced if a judge concludes that one person has taken unfair advantage of the other. For example, a court is unlikely to uphold a one-sided living together contract entered into between an experienced lawyer and an unsophisticated but wealthy 19-year-old who just moved to America and speaks little English, under which the immigrant agrees to support the lawyer.

When do you need a living together contract?

Obviously, you don't need a contract if you are in a brief relationship. But in a long-term and serious partnership, whether you're basking in the glow of having just "joined forces" or you've been together 20 years, you should consider the legal consequences of dealing with money and property.

If you are planning to mix assets or share expenses, you should definitely put your agreement in writing, especially if a significant amount of money is involved. If you're both stone-broke, with no property and little prospect of getting any soon, you can still benefit by deciding how you will handle money and property if it ever arrives.

What do you include in a living together contract?

A living together contract can be comprehensive, covering every aspect of your relationship, or it can be specific, covering only one transaction (such as a new house purchase). You can, and should, design your contract to say exactly what you both want, in words you both understand.

If you want your living together contract to include personal details about your relationship, make two agreements. The first one should pertain only to property and finances. Then, if the worst ever happens and you find yourselves in court, the property and finance terms will be the only ones a judge sees.

Write up a second agreement about who will do the dishes, who will walk the dog, how many overnight guests you'll allow and whose art goes in the living room. A court won't enforce this kind of agreement.

In fact, if you do make just one agreement that includes personal as well as financial clauses, you run the risk that a court will be distracted by the personal clauses and will declare the entire contract illegal or frivolous, thus negating the more important financial clauses.

Here are the issues that couples most often include in a living together contract:

Property and finances clauses

Your living together agreement should cover all of your property -- including the property you had before you began the relationship, as well as the property either or both of you accumulate during it.

You each probably had some property before you met. Making an agreement about this property may seem unnecessary, but it's not. Think about trying to sort things out ten years from now, when you've both been referring to everything around the house as "ours." You can agree to keep all of your previously owned property separate, or you might want to share some or all of it with each other. Do what suits you best.

Many people will want to keep separate the property they inherit or receive by gift. Others will want to "donate" the property to the relationship. Again, it's up to you. Remember that any property given to both of you is legally owned by both -- this includes gifts you receive at a commitment ceremony or anniversary party, even if given by a relative or friend of just one of you.

Many partners make purchases item by item, understanding that whoever makes the purchase owns the property. Purchases can also be pooled. A consistent approach to property ownership may simplify things, but the law allows item by item ownership. Some items may be separately owned, some pooled 50-50, and some shared in proportion to how much money each contributed toward the purchase price or how much labor each put into upkeep.

Expenses

A good agreement covers how you will handle expenses during your relationship. How will you divide the day-to-day costs for food, utilities, laundry, housing etc., especially if expenses increase or decrease?

Separation or death

Include provisions in your agreement stating what will happen if you split up or if one of you dies. You may simply want to say that if you separate, each of you will have the right to take immediate possession of your separate property and that all jointly owned property will be divided equally. If there is property that you own together -- but not in equal shares -- you'll want to specify a method for dividing it between you.

It's especially important to consider what will happen if one of you dies. Without properly prepared documents, members of an unmarried couple have no right to inherit property from one another. You can use your living together agreement to specify how you want to provide for each other; it will serve as strong evidence of your intentions. Be aware, however, that writing out a plan in your agreement is not enough. You should also use a will, living trust or other estate planning documents to ensure that your plan is carried out as you wish.

What happens to your living together agreement if you get married?

Your living together contract will be enforceable after marriage only if it was created shortly before your marriage at a time when you both planned to marry. To have your agreement be enforceable in must be a prenuptial contract made in contemplation of marriage.

Barbara Bachelder, CFP® for Wealth by Design, LLC