| Protecting the assets of unmarried
couples |
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The outcome of asset distribution for married couples
is pursuant to the divorce laws, whether it's marital property or
community property. For unmarried couples, the outcome in community-property
states and marital-property states is about the same.
Certified financial planner Debra Neiman, co-author
of "Money Without Matrimony," suggests that unmarried
couples go into a property or business purchase with a written agreement.
"You can call it a property agreement or a partnership
agreement. It spells out who contributed what toward the purchase.
Very often, one person has the capital, and the other has the brawn
and contributed the sweat equity."
Prepare 'what-if' contingencies
The written agreement of a property purchase should contain provisions
that address "what-if" contingencies. For example: If
the relationship dissolves, Party A will have the right of first
refusal to buy the house from Party B. Three appraisals of the property
will be obtained, and the average will be used as the purchase price,
says Neiman.
"Unmarried couples should have durable powers
of attorney," she says. "Each one would have their own.
They can name each other to make legal or financial decisions if
something happens."
For example, if one party suffers a medical crisis
and is unable to make business or financial decisions, the second
party with a durable power of attorney could do so on the first
party's behalf. Otherwise, the second party would have to go to
court and ask for guardian status before proceeding.
A written agreement should be bulletproof, and it
is a good idea to have it prepared by an attorney. "You don't
want anyone to later say that they were forced to sign it,"
says Neiman. "Married couples have divorce court, rules and
formulas. Unmarried couples do not. This is a way to set up your
own rules from the get-go."
What if the relationship ends and neither party is
willing to sell the property or business? That's a situation most
couples would want to avoid.
"We encourage our clients to enter into a property
management agreement, or a comprehensive cohabitation agreement,"
says Elizabeth T. Erhardt, partner at Sideman & Bancroft LLP
in San Francisco. The parties are free to contract as they wish,
as long as it's not for an illegal purpose, and the courts will
enforce the agreement.
What's in a title?
Deciding how to title property can be complex, especially in an
unmarried-couple relationship. It's wise to consult with a tax or
legal professional before making a final decision, but there are
some basics to consider.
If both parties contribute equally, they may choose
to own the property jointly with rights of survivorship. A 50-50
split makes sense if there is an equal contribution to the property,
but this isn't always the case.
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