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Before You Put a Ring on It: What couples need to know about cohabitation and premarital agreements

Most people know about premarital agreements from their negative portrayal in movies and in the media. (Did you see the final season of Entourage?) However, the reality is that premarital and cohabitation agreements are an important tool for life planning and estate planning. More importantly, they can be drafted to treat each person in the relationship fairly.

Premarital agreements as an estate planning tool

Premarital agreements are best known for their application in the event of divorce. And, while it is true that a well-drafted premarital agreement can determine the property rights of spouses in the event of divorce, it is a common misconception that all premarital agreements leave one spouse with all of the property, and the other spouse bereft. Instead, premarital agreements can be tailored to fit the specific wishes of the couple. For example, protecting the parties’ respective premarital property and/or inheritances, yet providing that all property otherwise acquired during the marriage shall be shared equally. (In Indiana, premarital property as well as property acquired by gift or inheritance constitute “marital property,” subject to division in the event of a divorce, without a premarital agreement.)

Less widely known is that premarital agreements can also be used as an estate planning tool. For example, a party with children from a prior relationship may wish to get remarried later in life, but wants to make sure that, at death, all property is passed on to prior children – say, because the new spouse has independent means, or has been provided for with life insurance. In the absence of a carefully drafted premarital agreement, Indiana law will not permit a spouse to leave all property to his or her children from a prior relationship; the spouse at the time of death is entitled to receive not less than roughly 1/3 of the decedent’s estate. However, such rights can be waived under a premarital agreement, providing the greatest estate planning flexibility.

The prevalence of cohabitation agreements

A recent report published by the National Marriage Project finds that children are now more likely to have unmarried cohabitating parents than divorced parents. This finding is consistent with growing findings that more and more couples in the U.S. are cohabitating rather than marrying.

This trend presents significant challenges in the judicial system. In Indiana, as is true with most states, the legal system is built upon the public policy of favoring married couples. Divorces can be messy and difficult for married couples who are ending their relationships, but there are statutes in place that provide the legal framework for that dissolution. For the cohabitating couple, there is no such framework.

Cohabitating couples in Indiana must use common law as interpreted by our appellate courts to deal with the same underlying relationship-based issues. It is an inexact process at best and can be cost prohibitive for many Hoosiers. Yes, there are legal remedies for dividing shared property and sorting through a couple’s finances. However, that path is not always clear. Again, public policy favors marriage and our laws reflect that preference. The growing trend toward more and more cohabitating couples may force our policymakers to address the changing needs of many Hoosiers.

Indiana case law provides uncertain and complicated equitable remedies for dividing property interests in the event that a cohabitation relationship concludes. A cohabitation agreement seeks to avoid court altogether - and provide both parties with better certainty and clarity - by defining, in advance, how property and other rights will be allocated between the parties, in the event their relationship subsequently ends.

Premarital and cohabitation agreements are increasingly popular planning tools to ensure that, when a relationship ends – and they all end, either by death or a break up – property rights are determined according to the parties’ wishes.

For more information about cohabitation or premarital agreements in Indiana, please contact us.

  • Partner

    Mike is a partner in Bingham Greenebaum Doll LLP’s Estate Planning Department. The Estate Planning Department seamlessly coordinates and executes a wide array of legal services that cater to the unique needs of high ...

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