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Jan. 16, 2020

Using Non-marital “Cohabitation” Agreements To Define Your Own Marriage Terms

California divorce laws too often present the parties with “long-term contracts” where the parties only learn the terms of the contract when they try to terminate the contract. The laws relating to the marital relationship impose significant “agreements” by default and most people getting married have no idea what they are signing up for. For example, California is a community property state. This carries the presumption that any asset or debt acquired during marriage belongs to both spouses. Yes, if during marriage either spouse runs up a large debt, both spouses are likely responsible for it. Likewise, if either spouse earns significant sums of money, both spouses can spend it.

California also creates obligations regarding spousal support by default. This obligation changes the longer, or shorter, the spouses are married. And, the impact of one spouse failing to meaningfully work during the marriage may have unexpected results on the obligation of the other spouse to pay spousal support.

In somewhat of a cross-over between property division and support, the impact of California law on a business that is either started or grown during a marriage can result in what is sometimes called a “double-dip.” In illustration, if one spouse starts or grows a business during marriage, that spouse may owe a buy-out to the other for the value of the business or the change in the value of the business. Then, in arguably a “double dip”,the business owner spouse may also have to pay support based on the income the business generates.

On occasion, people try to address and order property and support issues using a pre-marital agreement. Pre-marital agreements seem quite appropriate as tools for defining the financial relationship resulting from a couple’s marriage. However, even with a pre-marital agreement, there are significant concerns. Family Code section 1612 provides, in part, that a provision of a premarital agreement regarding spousal support is not enforceable if the provision is “unconscionable at the time of enforcement”. This standard is contrary to common contracting principles. Generally, when two parties enter a contract, and that contract ends up profitable for one and costly for the other, the contract is enforced as long as neither party was improperly coerced into the agreement - such as “at gun point” or by “deception.” This is sometimes referred to as “Buyer Beware” and is consistent with our American free enterprise economic system. With a premarital agreement, however, the determination whether or not to enforce the provision regarding spousal support is analyzed at the time it is invoked - in other words, does the court think it is fair at the time of enforcement- not when it was signed.

This standard of enforceability is such a speculative proposition that many attorneys have simply stopped drafting premarital agreements for fear of angry clients coming back when the premarital agreement is not upheld in the manner anticipated when it was drafted with both parties having full knowledge of all the facts and circumstances.

There is a highly effective brute force solution - don’t get married! While this is the most secure way of avoiding the unintended consequences of marriage, it is not in real life a particularly

acceptable solution. The next best thing is a marriage that avoids the obligations imposed by California law by default, and replaces the terms of the contract specifically drafted in accordance with the intent an wishes of the parties.

In effort to avoid the unintended consequences of imposition of contract terms not selected by the parties, but imposed by California law, and in recognition that committed people do desire to live together, some enter into “cohabitation agreements.” A “cohabitation agreement” is a type of agreement that was named for its purpose of defining the obligations and entitlements between cohabitating parties. However, there is nothing that requires the agreement to be named in such an inartful and cynical manner. I prefer the term “NonMarital Marital Agreement.”

California has long line of case and statutory provisions intended to address mistakes, accidents, and outright fraud that has befallen couples over the long-history of marriage in this state. For example, if the couple obtains a marriage license, has the marriage certificate signed by an officiant and returns it, but it is lost by a state official, the marriage is not invalidated by the technicality. Further, if one party is already married but the new spouse has no reason to know of the previous marriage, the new spouse does not lose the rights of marriage solely due to the previous marriage. While these are gross simplifications, the point is that the law is intended to prevent parties from using technicalities to argue non-marriage during a divorce to avoid obligations.

As a result, in order to opt out of California’s divorce laws, the parties in a technical sense must not be married in the eyes of the law. This can be achieved by intentionally, and knowingly, not obtaining a marriage license. If this failure to obtain a marriage license is not carefully documented, it may result in a fight over evidence later, so it must be carefully and openly orchestrated between the couple and their counsel. But once the parties opt to not be married, they are free to contractually define their financial arrangements almost without restriction. The parties can have a wedding. They can adopt each other’s names. They can exchange rings. They can refer to themselves as spouses.

Again, failure to obtain a carefully drafted agreement creates significant risk of unintended consequences, but with the advice of counsel, the couple can define their marriage without the imposed and potentially undesirable consequences of California law.