Prenuptial and Cohabitation Agreements
Introduction
Washington is a “community property” state; the community property laws apply to both married couples and registered domestic partnerships. Domestic partnerships are available to same-sex couples, as well as heterosexual couples if at least one of the partners is over age 62.
The rules governing whether or not property is community in nature, or the separate property of one spouse or domestic partner, can be quite complicated. Generally speaking, the earnings of either party during the marriage or partnership, or anything purchased with those earnings, is community property. Property acquired by either party prior to the marriage or partnership, or during the relationship by gift or inheritance, is generally considered to be the separate property of the recipient, but may be converted to community property by depositing the property into a joint account or titling it in the name of both parties. If community property is used to improve the separate property of one party, the other party may acquire an equitable ownership interest in the property. If the marriage or partnership is dissolved by a court, all property, community and separate, is subject to a “just and equitable” division, and the separate property of one party may be awarded to the other party.
Moreover, although community property laws do not apply to unmarried couples outside of domestic partnerships, Washington courts have applied equitable legal principals to divide property acquired during an intimate, committed relationship between unmarried couples.
Couples often wish to avoid these common-law and statutory rules, and eliminate any doubt as to whether property is community or separate in nature, or how property will be divided when the relationship ends, through the death of one party or otherwise. This is often the case when one or both parties have acquired substantial property prior to the relationship, or expect to receive substantial gifts or inheritances during the relationship. Older couples often want to protect property that one or both parties acquired before the relationship for the benefit of their respective children and grandchildren.
Prenuptial Agreements and Cohabitation Agreements can help couples accomplish these goals.
Prenuptial Agreements
Prenuptial agreements permit parties to create their own rules for the characterization, treatment and disposition of all property that is owned or acquired by the parties; when properly executed, they are considered to be conducive to marital tranquility and avoiding future property disputes. However, the law recognizes that the parties do not deal with each other at arm’s length, and that there may be a wide disparity in the parties’ sophistication and bargaining power. Therefore, Washington courts apply a two-part test to determine if a prenuptial agreement is valid and enforceable. The burden of proof is on the spouse seeking to enforce the agreement.
The first part of the test addresses whether the agreement is substantively fair, i.e., that the agreement makes a fair and reasonable provision for the party not seeking to enforce the agreement. Generally, an agreement will be upheld even if it operates to the benefit of the wealthier spouse, provided it is not so one-sided as to be unfair to the poorer spouse.
Even if an agreement is not substantively fair, it may still be upheld if it is procedurally fair. In assessing procedural fairness, a court will consider whether there was full disclosure of the amount, character, and value of each parties’ property, and whether the agreement was entered into fully and voluntarily, on independent legal advice and with full knowledge by both spouses of their rights.
When analyzing these issues, a court will consider whether the disadvantaged party had a reasonable amount of time to reflect on the proposed terms of the agreement. Therefore, a party who wants a prenuptial agreement should bring up the subject with his or her partner as soon as possible; waiting too long to discuss it raises the possibility that the agreement will fail the procedural fairness test, because of the undue pressure placed on the disadvantaged spouse to forego both independent legal advice and any meaningful negotiations, in order to avoid postponing the wedding.
A party to a Prenuptial Agreement should also make arrangements for disposition of his or her property after death, such as through a Will or Revocable Living Trust; otherwise, the intestacy statutes will control disposition of the property, and may defeat the purpose of the Prenuptial Agreement.
At the Law Office of John S. Palmer, we have experience negotiating and drafting Prenuptial Agreements. If you are considering a Prenuptial Agreement, or are being asked to sign one, call us at (425) 455-5513, toll free at 1 (877) 455-5513, or send us an email to set up a free initial consultation.
Cohabitation Agreements
Property acquired by unmarried couples is potentially subject to equitable division by a court after the relationship ends, whether by separation or by death of a party.
Historically, this is known as the “meretricious relationship” doctrine; the courts have defined a “meretricious relationship” as a stable, marital-like relationship where both parties cohabitate with knowledge that a lawful marriage between them does not exist.
Relevant factors that a court will use to determine whether a meretricious relationship exists include whether the parties continuously cohabitated, the duration of the relationship, the purpose of the relationship, whether the parties pooled resources for joint projects, and the intent of the parties. A relationship need not be long-term in order for the doctrine to apply; a short-term relationship may qualify, depending upon the facts.
Washington courts have made clear that a meretricious relationship is not the same as a marriage or domestic partnership, and that the laws involving the division of marital or partnership property do not directly apply to a meretricious relationship. For example, in proceedings to dissolve a marriage or domestic partnership, the separate property of one spouse or partner may be awarded to the other party; in a meretricious relationship, the separate property acquired by either party prior to the relationship is not subject to division. Only assets that would have been characterized as community property had the parties been married or in a registered domestic partnership, is subject to division by the court. However, as mentioned above in the context of prenuptial agreements, depositing separate property into a joint account or using joint property to improve the separate property of one party may make it difficult to determine if an asset has retained its separate property status.
As with prenuptial agreements, a cohabitation agreement can deviate from these rules and permit the parties to create their own rules for the characterization, treatment, and disposition of property.
While the case law regarding cohabitation agreements is not as well developed as in the area of prenuptial agreements, courts tend to favor agreements that reduce the likelihood of litigation. It is also reasonable to assume that the guidelines established for creating a valid prenuptial agreement should be followed when drafting and executing a cohabitation agreement; in other words, the agreement is much more likely to be upheld by a court if it is both substantively fair and procedurally fair. Care should be taken to avoid the possibility that either party will later claim he or she was rushed into signing, and each party should be represented by independent legal counsel.
As with a prenuptial agreement, parties to a cohabitation agreement should make arrangements for disposition of property after death, such as through a Will or Revocable Living Trust, in order to ensure that the deceased party’s property passes to his or her intended beneficiaries.
If you are considering a cohabitation agreement as part of your estate plan, or are being asked to sign one, give us a call at (425) 455-5513, toll free at 1 (877) 455-5513, or send us an email to set up a free initial consultation.
If you have any questions or would like to schedule a free initial consultation, please call us
at (425) 455-5513, toll free at 1 (877) 455-5513, or send us an email.