The Financial Agreement is designed for unmarried people who live
together.
In designing the Financial Agreement for Couples, we have purposely not provided
elaborate contract protections and complex clauses. We believe that for most people a
fundamental statement of their financial arrangement is sufficient. If, for ANY reason,
you have doubts about the suitability of these frameworks in your situation or have a
question about whether more complete legal protections are appropriate, we urge you to
discuss this with us before you complete your agreement.
Sometimes couples make these arrangements to protect assets from creditors where one of
them has large debts. This situation presents a number of very real problems that need to
be addressed. For example, if you have made such an arrangement and the one who holds
title later does not comply with your plan, the other may be entirely out of luck in
trying to assert rights regarding the asset.
Why Use the Financial Agreement?
In addition to any romantic component to your relationship, there are ways in which it
most closely resembles a business partnership. There is a purpose to it, it involves
assets, liabilities, income and expenses, just like any other partnership. This is a
partnership, however, that involves matters that are essential to the quality of life.
Most people would not think of investing their life savings and all their possessions
in a partnership without having at least some written agreement with the other partner.
Yet many couples thoughtlessly avoid creating a written agreement with their domestic
partner. Let us take a look at some of the reasons why this is unwise.
Why fix what isn’t broken?
We may confuse the absence of disagreement with agreement. The fact that you don’t
disagree may also mean that one of the two of you is keeping silent, suppressing yourself,
or putting up with something you don’t agree with. This approach will eventually
damage your relationship.
One of the hidden benefits of being an unmarried couple is that you can write your own
agreement based upon whatever terms the two of you agree upon. Married couples are given
an agreement by law and this hides basic differences of opinion that frequently exist
between husbands and wives about money matters.
You might be amazed at the gulf between what each of you assumes you agree upon and
what you actually agree on. Much of the time we confuse the dialogue that goes on in our
head with what we have discussed with the other person.
We suggest that as a part of your going through this Workbook, you each write down all
the "understandings" you think have with each other. Then compare them.
Is it right for us?
We don’t know. What we recommend is that you go through the pages in the Workbook
which explain the agreements provided here. If, as you do so, you notice there are areas
you either do not understand or would like to make significantly different provisions, we
strongly urge you to discuss this with us.
The Financial Agreement is designed for middle-income life partners who have made a
commitment to a life together. It does not contain sophisticated arrangements nor is it
designed to take advantage of each tax benefit that may be important to people in the
upper income brackets.
We have tried to address the most common issues faced by couples and have limited your
choices to those we think will serve the needs of most people. We have used common
language provisions rather than sophisticated legalese so that you can understand your own
agreements.
Reread the first portion of this topic. If you have any arrangements that depend upon
mutual trust, we strongly urge you to place the arrangements into a written agreement.
Elements of an Agreement:
Basic Frameworks
The Estate Document Set provides three basic configurations or frameworks for your
Financial Agreement. The three different frameworks are designed to fit the most common
arrangements found among people living together. The first step in preparing your
Financial Agreement will be to select one of the three basic frameworks.
To that framework you will then add provisions to customize the Financial Agreement for
your situation. A description of the three basic frameworks can be found below.
In selecting which of the three is best for you, we again urge you to reflect on the
matter, determine what you want (as opposed to what you think the other person wants or
what you can have) and then discuss it with your domestic partner. All three of the
frameworks are simple, streamlined agreements.
Separate finances, shared household expenses
"We will live together and maintain separate and independent financial
arrangements, except that we will share our ordinary household expenses. We define
"household and ordinary" expenses as "ordinary household expenses such as
food, utilities, maintenance and decorating our home, as well as non-household expenses
such as automobile maintenance, clothing, medical and dental care, entertainment and
leisure activities, hobbies and other routine, ordinary expenses."
The intention is to include the kind of normal, ongoing expenses that it takes to keep
a household operational. Excluded would be unusual purchases and investments that one of
you might want to make. You could always reach a separate agreement with regard to them as
they occur.
This framework then provides for either a preset amount that each of you will
contribute each month for these expenses or a specified percentage ratio of these expenses
that each will contribute monthly. The intention is to provide the limits of what you are
committed to contributing each month.
Any contributions by either of you in addition to these amounts would be voluntary and
no reimbursement is required unless otherwise agreed by both of you.
Where you have set a specific dollar amount for each to contribute monthly, and If your
household and routine expenses exceed the combined contributions, they are probably not
routine and ordinary, or you have miscalculated your regular budget and need to revise
your Financial Agreement to reflect this new amount.
Completely separate finances
The next framework option provides for completely separate financial arrangements.
"We will live together and maintain separate and independent financial
arrangements. We may contribute to shared expenses as they occur, but there is no
obligation to do so. "
In this framework there would be no sharing of income or debts, each of you would keep
all your income and be responsible for all your debts. You would handle any shared
expenses as they occur and make decisions then about who would pay what portion of the
expense. This framework may be appropriate if you have separate bank accounts, credit
cards, telephone accounts, etc. and regularly handle your own finances. It is especially
useful in situations where you want to protect against any liability for the debts of your
domestic partner. The drawback, of course, is that you will frequently have to work out
how much each of you owes for any expenses that are shared. The practicality of this will
depend upon how many shared expenses you have and your individual temperaments.
Completely shared income and expenses
Finally, the third framework provides for a complete sharing of income and debt. This
can be further customized by providing for the percentage of ownership each of you will
have regarding items purchased through your common accounts.
This framework provides that each of you has full access to the income of the other and
contemplates you placing your income into joint accounts. All debts, regardless of whose
name it was in, would be the responsibility of both of you.
- A few words of caution: First, this framework can lead to important legal consequences.
You give up separate control over your income and share it with your domestic partner.
"We will live together and share fully all our income, expenses and
financial responsibilities."
One of the benefits that homophobia has given us is being able to write our own
"marriage" laws. Based upon the author’s experience with heterosexual
divorce cases, the "share it all equally" model provided by the legislature for
married couples does not always work very well.
Sometimes a couple will think that they need to share everything to prove that they
love each other. As Tina sings, "What’s love got to do with it?" Remember,
your relationship is both a marriage of emotions and a business relationship.
Do not mix the two. Deal with money and finances with a clear head and do not make the
mistake of thinking that you can make up for a deficit in the emotional side with a credit
in the financial side. It doesn’t work that way and we have found it sets you up for
an early end to the relationship.
We urge you to pause and possibly seek professional counsel before adopting this
framework. Also, if your incomes are significantly different, there could be tax
consequences. The partner with the larger income is essentially making a gift of her or
his income to partner with the smaller income every time income and expenses are shared.
For those of you who choose the "Share All" framework, you will need to
decide how you will own the items purchased during the relationship. You insert a
percentage figure for each of you in the space provided on the form.
You might share everything equally, as do legally married couples, or you might provide
for ownership in the same ratio as you contribute earnings. For example, where one earns
$44,000 per year and the other $22,000, you might decide to provide that one owns
two-thirds and the other one-third of everything you buy.
Remember to state this ratio of ownership rights on any documents of title, such as
automobile pink slips or deeds to property. Anything that is stated on those documents
will take precedence over what you say in your Financial Agreement and a discrepancy could
lead to future arguments.
Debts Provision for Separate and Separate/Household Frameworks
When using the framework for separate finances or the one for separate finances with
shared household expenses, the suggested provisions in the Estate Document Set Financial
Agreement state that the debts that each of you incur are the responsibility of the one
incurring them.
"Neither of us will be responsible for the debts of the other, unless
otherwise stated in writing. Nothing in this Agreement is intended to change this
provision."
If you have selected the framework for people sharing their incomes and expenses, you
will need to add a provision for how to handle debts. Remember, no matter what you decide
to say in your Agreement between yourselves, it is not binding on outside creditors.
- Share our debt in the same ratio as we share ownership rights
This option would have the two of you, like Jim and Bob in the example above, share
payment of debts in the same ratio as share ownership of items you purchase. Note the
limitations on this provision with regard to the outside world. This is the way some
couples deal with their debts in practice, even though they have never talked it out or
agreed to it.
For example, lets consider a relationship where Bob earns twice as much as Jim. Bob and
Jim agree to share and share alike both income and debt, except Bob agrees to pay
two-thirds of their debts because of his greater income. Jim decides to buy an item on
credit in his own name. Later, he is laid off from his job and cannot pay his portion of
the debt.
In this situation, the creditor is able to collect the full amount of the debt from Jim
because he signed the financing agreement. It is not bound by the agreement between Jim
and Bob that says Jim only has to pay one-third of the debt.
You should also be aware that the creditor might have rights to collect from Bob as
well, even though he did not sign the financing agreement, if the creditor knew at the
time of extending credit that Bob had agreed to pay two-thirds of Jim’s debt.
- Share all debts equally
If you are going to adopt this practice, which is similar to the way California law
provides for married couples, we urge you to consider all the advantages and
disadvantages, talk it out and be aware of any hidden agendas in this regard.
After selecting a basic framework, you will have several options to choose from to
describe your housing arrangements. Here are the four options we suggest for you to select
from:
- Everything in separate documents
"All agreements regarding our housing, whether rentals or ownership, are
contained in separate documents"
Where you have deeds, leases or other written documents entered into by both of you,
you can refer to them by using this provision. This is the preferable manner to handle
such matters for it allows you to make changes as appropriate and also protects against
one set of arrangements in your Financial Agreement and a different set in other
documents.
However, if you do not have these agreements in writing, do not use this provision. Do
not rely upon unwritten, verbal agreements. They are not worth the paper they are not
written on.
- One of us has leased our residence
"Kelly has leased our residence at 1234 Jaded Lane, New Town CA 99935 and this
will be our home. We will share responsibility for payment of the rent on this
lease."
If one of you has previously entered into a lease for the home you will live in, this
is a way to include this fact and arrange for a sharing of the rent. If you will not be
sharing the rent, do not include this provision, however, or delete the last sentence.
Once again, the fact that you include this paragraph in your Financial Agreement may
have legal consequences. The landlord may gain rights to collect unpaid rent from the one
who is not on the lease because of it.
Where a lease is in the name of only one of you, if that person dies first, the
landlord may have no obligation to allow the other to continue to live there and he or she
may face eviction.
We strongly recommend that you enter into a new lease in both names. That will protect
your rights to continue in possession of the leased premises. If that is not possible, you
should have the landlord agree in writing to a sublease to the person whose name is not on
the original lease. This may provide effective protection, depending upon the terms of the
original lease. We recommend that you consult legal counsel in this regard.
- One of us owns our residence
"Pat owns our residence. Any payments made with our joint funds is for rent of
this property and does not create any ownership interest in this property by Kelly."
Where title to your home is in the name of one of the two of you, payments made from a
common fund or otherwise provided in part by both of you should be regarded as rent. If
you intend to have the payments create an ownership interest in the person not on title,
you should enter into a separate agreement for that purpose. You should consult us to
discuss whether to make a formal deed and conveyance.
- One
of us will pay for housing
"Our residence is owned or leased by one of us who is responsible for all
payments in connection with it. Any such payments or expenses do not create a right of
reimbursement from the other."
You can use this provision where one of you owns or leases your home and will make the
payments. The other owes nothing because of such payments. There could be tax consequences
if the amounts are large.
This may be appropriate, especially if one of you is not an income producer and you do
not intend to share ownership rights. It can also be useful where you balance housing
payments made by one of you with the other covering other expenses.
We have given you three choices regarding the starting date for your Financial
Agreement:
- When Signed
"This Agreement will be effective starting with the date we both sign
it."
This provides that the consequences of events prior to the signing of the Agreement is
not affected by this Agreement. This is especially useful if you are just beginning your
relationship or if you had a previous agreement and you now wish to adopt different terms.
- Reflection of Prior Verbal Agreement
"This Agreement reflects our verbal agreement that already exists. We want to
make this Agreement effective as of May 1, 1990."
Where you have previously worked out the terms of your financial agreement and are
using this Financial Agreement to commit those terms to writing, this provision may be
appropriate. Whatever events have occurred since the date you specify will be covered by
this Agreement. This is specially suitable for couples who have been in a relationship for
a while but have never written down their understandings.
- Begins on a Specific Date
"This Agreement will be effective as of December 1, 1998."
You may wish to delay the effective starting date of your Financial Agreement to a
future date or, you may wish to make it effective as of a prior date even though you did
not have a prior agreement on the same terms.
We might like to believe that this relationship will never end, but prudence tells us
to provide for that eventuality anyway. We have included the following provision in all
three of the frameworks:
"This Agreement will end whenever: (1) We both agree in writing to end it, or,
(2) One of us gives the other a written notice that it is over, either in person or by
mail."
We have included this so that you can either reach an agreement to end the Agreement or
one of you can do so unilaterally. We have also provided that the mechanism for ending the
Agreement is a written one, rather than verbal. This is preferable so that no questions
arise later as to the ending date or conditions.
It is appropriate to point out that your Financial Agreement is separate from your
emotional relationship, if any. We are simply giving you a means to keep everything
regarding money and things orderly and clear. We are convinced that in doing so, you will
enhance the other aspects of your relationship together.
"This Agreement will end only after we have consulted with an independent
arbitrator who will determine our respective rights under this Agreement."
This is an optional but highly recommended provision that you can add to your Financial
Agreement. We are of the opinion that your interests are best served through mediation and
arbitration rather than litigation. Obviously, if you reach an agreement on your own at
the time of ending the Agreement, you will not need to involve an arbitrator. If, however,
there are issues you cannot agree on, using a neutral third party can be very beneficial.
An arbitrator can be anyone you want to use and need not be a professional. There are,
however, in many large cities free or low cost dispute resolution services available to
you.
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The following paragraph is included in all the Financial Agreement frameworks:
"Neither of us will be liable for the support of the other during the period
of our relationship except as otherwise provided in this Agreement. Nothing contained in
this Agreement, however, will create any rights or obligations for the support of either
of us after the end of this Agreement."
If you want any different provision you definitely should discuss this with an
attorney.
If either of you needs to seek enforcement of the terms of this agreement, the
prevailing party will be entitled to attorney’s fees and costs for doing so. The
Agreement is binding upon your heirs as well, which can help avoid difficulties with
families who do not appreciate your relationship. You do not need to notarize your
signatures to the Financial Agreement. We suggest keeping it in a accessible place.
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