Cohabitation Agreements - Exclusion Clauses in a Universal Partnership
Clients often ask me to draft so-called “cohabitation agreements”. This is usually in cases where they have children together and decide not to get married.
The so-called “cohabitation agreement” usually would have a parenting plan annexed thereto dealing with care and contact to the child. It would also have clauses dealing with finances and maintenance.
The cohabitation agreement would have clauses dealing with financial provisions to operate during the period of the agreement, but would also have clauses relating to finances on termination of the agreement.
Often when parties legally marry they marry with an antenuptial contract excluding accrual. This means that on termination of the marriage each party retains whatever he or she purchased before or during the marriage as his or her sole and exclusive property. In a situation when parties live together, one party can only be entitled to share in the other party’s assets if a so-called “universal partnership” can be proven, for example if the parties were running a business together for example.
Can one have a clause in a cohabitation agreement which prevents a universal partnership being created? Yes you certainly can. Such a clause may read as follows:
“No partnership, whether universal or otherwise shall be created expressly, tacitly or impliedly as a result of the parties cohabitating together”.
Another common clause sometimes used together with the clause abovementioned would be one reading as follows:
“On termination of the cohabitation agreement each party shall retain the assets purchased by him or her during the relationship as his or her sole and exclusive property”
Usually it would be the client who has more money or assets than his or her spouse who insists on this “exclusion of universal partnership” clause in the cohabitation agreement. That party would obviously have more to lose financially than the other party if the relationship came to an end.
If the other party does not want to sign the cohabitation agreement if these clauses are inserted, there would no doubt be a stalemate situation. The parties must then decide if they want to carry on with their relationship or not.
The antenuptial contract excluding accrual has the same effect as the clauses abovementioned. There is however a high divorce rate currently and there is always a risk getting married. A lot can be said in favour of parties not legally marrying but merely entering into cohabitation agreements.
Usually this type of cohabitation agreement would also have a clause dealing with liabilities. A typical clause would state that “each party shall be liable for debts incurred in his or her own name”.
Marriages and live-in-relationships these days have become like financial transactions. It is very important for parties to look into their best interests and to protect their assets.
A signed cohabitation agreement which is properly witnessed is a legally binding contract, just like an antenuptial contract. I would urge both parties who are planning on entering into a cohabitation agreement to each consult their own attorney first. I would also urge parties to do this before signing an antenuptial contract.
The reality of the matter is that relationships come to an end and before moving in with somebody, having a child with them, or marrying them, you must make sure that you are protected from a legal viewpoint.