Welcome back to the Net Worth Podcast.
Speaker 2: This week we are diving into cohabitation agreements and how they can profoundly impact your net worth.
Speaker 1: Check out the full edition on our website, wearenoyack.com.
Speaker 2: are wearenoyack.com.
Speaker 1: So we’re seeing this really interesting shift in relationships, aren’t we?
Speaker 2: know, marriage used to be the main path, but now, well, loads more couples are living together without getting married.
Speaker 1: And while that’s totally fine, obviously very popular, it does bring up some unique financial things people might not think about, especially when it comes to protecting your net worth.
Speaker 2: Okay, let’s unpack this.
Speaker 1: Why is a cohabitation agreement so, so important for your financial health, specifically for that net worth figure?
Speaker 2: This edition of Noyack Wealth Weekly really puts numbers on the shift.
Speaker 1: It mentions that back in 1970, it was only about what, one in a hundred unmarried couples living together?
Speaker 2: now it’s jumped to eight in a hundred.
Speaker 1: That’s a huge change.
Speaker 2: really is.
Speaker 1: And it just highlights why we need to understand the money side of things when you live together but aren’t married.
Speaker 2: It means you have to be, well, more proactive.
Speaker 1: What’s truly fascinating here, I think, is how society’s changed faster than the law in some ways.
Speaker 2: Marriage comes with this whole built-in legal structure, you know, for assets, debts, even support sometimes.
Speaker 1: Automatic protections.
Speaker 2: Exactly.
Speaker 1: But cohabitation, generally, uh it offers almost none of that automatically.
Speaker 2: If you’re living with a partner, unmarried, the law doesn’t just assume you have claims to shared stuff if things end.
Speaker 1: That’s why you, the couple, need to take charge.
Speaker 2: Without a clear written agreement, you’re kind of leaving your financial future, your net worth, a bit exposed.
Speaker 1: That’s a really key difference.
Speaker 2: So these agreements are like a financial safety net then.
Speaker 1: Precisely, a proactive one.
Speaker 2: And this edition points out, what, three main reasons they’re so vital for net worth.
Speaker 1: First is uh defining who owns what and who owes what, right?
Speaker 2: Financial ownership and liability.
Speaker 1: Absolutely.
Speaker 2: Like imagine you pay a lot towards the rent or even mortgage payments on a place your partner owns.
Speaker 1: Or you pay for big renovations.
Speaker 2: Big contributions.
Speaker 1: Without an agreement, if you break up all that money you put in, it could just be gone.
Speaker 2: No legal right to get it back.
Speaker 1: Poof.
Speaker 2: Legally, it might not be recognized as your investment.
Speaker 1: Ouch.
Speaker 2: OK, so that’s reason one.
Speaker 1: Reason two is preventing costly disputes later.
Speaker 2: Yes, this is huge.
Speaker 1: Nobody likes to think about breaking up, but it happens.
Speaker 2: Of course.
Speaker 1: And when it does, fights over money and property, they can get nasty and expensive, really expensive with lawyers and courts.
Speaker 2: Yeah, I bet.
Speaker 1: So setting out expectations up front, who gets what, who’s responsible for which bills, maybe even support it, can drastically cut down on the emotional pain, and the legal costs that just eat away at your wealth.
Speaker 2: So it’s like an investment in avoiding future conflict.
Speaker 1: Exactly.
Speaker 2: Conflict avoidance is a key part of wealth retention.
Speaker 1: OK.
Speaker 2: And the third reason, clarity on long-term commitments.
Speaker 1: Right.
Speaker 2: This helps you both formally state what you intend for things like property you acquire together or how shared assets should be dealt with, even things like inheritance is down the line.
Speaker 1: It helps avoid those uh unwelcome surprises the article mentions.
Speaker 2: Things that can pop up years later and really mess with your financial picture or your families.
Speaker 1: It’s about making things predictable.
Speaker 2: Building a solid foundation.
Speaker 1: If we connect this to the bigger picture, um think of it this way.
Speaker 2: A cohabitation agreement isn’t just a break glass in case of emergency thing.
Speaker 1: It’s actually a strategic financial tool.
Speaker 2: Strategic?
Speaker 1: How so?
Speaker 2: Well, it’s about efficient wealth retention.
Speaker 1: By avoiding those potential future conflicts and legal battles, you’re keeping your money working for you.
Speaker 2: not paying lawyers.
Speaker 1: Makes sense.
Speaker 2: And it’s about conflict avoidance proactively.
Speaker 1: Setting clear rules means less chance of misunderstandings turning into major fights that drain resources.
Speaker 2: It keeps your wealth intact and focused on your goals.
Speaker 1: And this edition has that case study, right?
Speaker 2: James and Sophia, that really hits it home.
Speaker 1: Oh yeah, that’s a tough one.
Speaker 2: So James moves into Sophia’s condo.
Speaker 1: She owns it.
Speaker 2: But for five years, he’s paying towards the mortgage, funding renovations, covering repairs, basically acting like a co-owner.
Speaker 1: contributing significantly, assuming they were building something together.
Speaker 2: Right.
Speaker 1: He thought he had equity a stake in it.
Speaker 2: But then Sophia ends it and James finds out what?
Speaker 1: He finds out he has zero legal rights to the property.
Speaker 2: All those contributions, years of payments, legally they meant nothing towards ownership because his name wasn’t on the title and there was no agreement.
Speaker 1: Wow.
Speaker 2: So he just walked away with nothing from that investment.
Speaker 1: Nothing but the experience, unfortunately.
Speaker 2: It’s a stark lesson.
Speaker 1: Yeah, it really is.
Speaker 2: This raises an important question then.
Speaker 1: Yeah.
Speaker 2: steps can you, listening right now, take to avoid a similar situation?
Speaker 1: James’s story is a real wake-up call.
Speaker 2: Absolutely.
Speaker 1: It shows that good intentions and financial contributions just aren’t enough in the eyes of the law for cohabiting couples.
Speaker 2: You have to protect those contributions legally.
Speaker 1: Otherwise, it’s like giving money away with no guarantee.
Speaker 2: Which is exactly why this edition lays out those five essential steps to protect your finances and cohabitation.
Speaker 1: Practical advice.
Speaker 2: Very practical.
Speaker 1: So step one, have the money talk before you move in.
Speaker 2: Yes.
Speaker 1: Crucial first step.
Speaker 2: I know.
Speaker 1: It sounds maybe unromantic, but it’s fundamental.
Speaker 2: You’ve got to sit down, be open about income, debts, student loans, credit cards, whatever assets you each have, and your financial goals together.
Speaker 1: Like buying a house.
Speaker 2: Investing, what’s the plan?
Speaker 1: Exactly.
Speaker 2: And the pro tip in the addition is great.
Speaker 1: Set up a regular money date, maybe monthly, just to check in.
Speaker 2: Keeps the conversation going, builds alignment, avoid surprises.
Speaker 1: Definitely.
Speaker 2: OK, step two, decide how to split expenses because money stress.
Speaker 1: Well, it breaks up couples.
Speaker 2: It’s a major factor, unfortunately.
Speaker 1: So having a clear plan from day one is key.
Speaker 2: And the addition suggests what?
Speaker 1: Three ways?
Speaker 2: 50-50?
Speaker 1: Which works best if incomes are similar, yeah.
Speaker 2: Or income-based, so it’s proportional.
Speaker 1: Right.
Speaker 2: If one earns 70 % of the combined income, they pay 70 % of shared bills, for example.
Speaker 1: Or expense-based, where you split categories, like one pays rent, the other groceries.
Speaker 2: Mm-hmm.
Speaker 1: Whatever works for the couple, but the key is agreeing on something and opening a joint account just for those shared expenses.
Speaker 2: Highly recommended.
Speaker 1: For transparency.
Speaker 2: Makes sense.
Speaker 1: Keeps things clear.
Speaker 2: Protects both your contributions.
Speaker 1: OK.
Speaker 2: Step three.
Speaker 1: What actually goes in a cohabitation agreement?
Speaker 2: This is the nitty gritty.
Speaker 1: It is.
Speaker 2: This is the legally binding part.
Speaker 1: It needs to cover who pays rent or mortgage and what happens if someone moves out.
Speaker 2: Property ownership details.
Speaker 1: Absolutely.
Speaker 2: Furniture, cars, the house itself, who owns what or how is it shared.
Speaker 1: Debt responsibility is key to our contributions to shared debts reimbursed.
Speaker 2: And even pet custody, it mentions.
Speaker 1: Yeah, pets are family.
Speaker 2: And importantly, an exit plan.
Speaker 1: How are assets and debts divided if you do split up?
Speaker 2: Like with James, if you’re not on the mortgage, you might have no rights without this agreement spelling it out.
Speaker 1: Exactly.
Speaker 2: This document prevents that kind of disaster.
Speaker 1: Right.
Speaker 2: Step four, plan for the unexpected.
Speaker 1: Because cohabiting couples don’t get those automatic legal protections like married ones.
Speaker 2: No, they don’t.
Speaker 1: Think about breakups where things aren’t divided fairly or emergencies like a job loss.
Speaker 2: Who covers things then?
Speaker 1: And inheritance is a big one, right?
Speaker 2: Huge.
Speaker 1: Without a will, specifically naming your partner, They might get nothing if you pass away, no matter how long you were together.
Speaker 2: The law often defaults to blood relatives.
Speaker 1: So the solution, co-ownership agreements for big assets.
Speaker 2: Yeah.
Speaker 1: And definitely estate planning.
Speaker 2: Yes.
Speaker 1: Wills, maybe trusts, powers of attorney.
Speaker 2: These ensure your wishes are followed and your partner is protected.
Speaker 1: Preserves your net worth for who you intend.
Speaker 2: Makes sense.
Speaker 1: OK, final one, step five.
Speaker 2: Thinking long term, cohabitation versus marriage.
Speaker 1: This mentions some research.
Speaker 2: Kind of interesting.
Speaker 1: Yeah, the finding that couples who cohabit before marriage sometimes have higher divorce rates.
Speaker 2: Why is that?
Speaker 1: Often attributed to sliding into living together rather than making a conscious decision with discussions about the future.
Speaker 2: It’s less intentional, perhaps.
Speaker 1: Expectations might not align.
Speaker 2: Ah, OK.
Speaker 1: So the advice is if marriage is the goal, maybe set a timeline to discuss it seriously.
Speaker 2: Right.
Speaker 1: Make a conscious choice together.
Speaker 2: And if marriage isn’t the plan, then it’s even more critical to get those financial protections, like the cohabitation agreement, sorted out.
Speaker 1: Because otherwise, you could end up like James, years of contributing, ending with nothing.
Speaker 2: A very real risk.
Speaker 1: And it seems like other experts agree.
Speaker 2: This sedition mentions views from places like Kiplinger, US news money.
Speaker 1: What’s fascinating there is the consensus.
Speaker 2: Kiplinger stresses covering property, debts, estate planning, support, like a prenup, basically.
Speaker 1: Yeah.
Speaker 2: U.S.
Speaker 1: News reinforces the need for clarity.
Speaker 2: that Financial Times case with the parental gift?
Speaker 1: Yeah, that’s a great specific example.
Speaker 2: A 50,000 pound gift towards a home deposit because they had a cohabitation agreement and a declaration of trust.
Speaker 1: A what now?
Speaker 2: A declaration of trust.
Speaker 1: It’s a legal document saying that even if someone isn’t on the property title, they have a beneficial interest, basically a financial stake.
Speaker 2: Oh, OK.
Speaker 1: The 50,000 pounds was protected when the relationship ended, even though they weren’t married.
Speaker 2: it legally recognized the contribution.
Speaker 1: these aren’t just suggestions, they’re like a central tool.
Speaker 2: Critical safeguards, really.
Speaker 1: So what does this all mean?
Speaker 2: If we boil it down for net worth, this edition lists the benefits.
Speaker 1: Yeah, the net worth benefits at a glance.
Speaker 2: Asset protection, making sure contributions are recognized.
Speaker 1: Conflict avoidance, setting rules upfront to prevent expensive fights.
Speaker 2: Definitely.
Speaker 1: Saves money and stress.
Speaker 2: estate and future planning, making sure it fits with your will and long-term wealth goals.
Speaker 1: Crucial for succession.
Speaker 2: And efficient wealth retention, basically, keeping your money by avoiding those legal drains.
Speaker 1: Absolutely.
Speaker 2: It all ties together to protect and potentially grow your net worth.
Speaker 1: Right.
Speaker 2: Ultimately, look, cohabitation is common now, but the old legal defaults don’t always fit this reality.
Speaker 1: No.
Speaker 2: So these agreements, they’re a practical legal way to bridge that gap.
Speaker 1: protect your finances, define expectations, and actually maybe even strengthen the relationship by getting money stuff out in the open.
Speaker 2: Yeah, removing that uncertainty.
Speaker 1: It’s just smart, proactive financial planning for how people live today, protecting your net worth with clarity.
Speaker 2: So considering all these protections, all these potential pitfalls, here’s a thought for everyone listening.
Speaker 1: What’s one step you could take this week to secure your financial future if you’re cohabiting or even just thinking about it?
Speaker 2: Remember to subscribe to Noyack Wealth Weekly on our website, wearenoyack.com, to read the article behind today’s conversation and to get our weekly newsletter straight in your inbox.
