Overview of Cohabitation Agreements in North Carolina

Cohabitation Agreement Defined

In North Carolina, a cohabitation agreement is sometimes referred to as a "palimony" agreement, although this term has fallen out of favor in the state. A cohabitation agreement, like any other contract, is a contract between two parties prior to entering into cohabitation, which is defined as "the act of living together and having an intimate relationship without being legally married".
A cohabitation agreement is designed to address relationship issues much like a marriage or domestic partnership agreement . However, the biggest difference between a cohabitation agreement and a marriage or domestic partnership agreement is that cohabitation agreements can be created by any two people, and does not have to be a heterosexual relationship. A cohabitation agreement can outline and clearly stipulate the couple’s intentions for their assets and liabilities both during their cohabitation, and after if they choose to split in the future.
Cohabitation agreements are used to accomplish the same goals and outline the same information as a marriage or domestic partnership agreement, but are designed for those relationships that are not considered to be legally married or recognized as domestic partnerships.

Civil Legal Relevance in North Carolina

The state of North Carolina does not recognize or enforce common law marriages. Even though many people believe that if you live together with a partner for a certain number of years, you are "common law married", that is not the case in North Carolina. A person must enter into a valid marriage ceremony to be legally married. However, the courts in North Carolina do allow a case for "equitable distribution" or property division to be filed between unmarried parties living together to divide assets acquired during the relationship. The party filing the case does not have to prove they were common law married in order to have the court divide their assets. They only have to prove that they were together for a period of years and acquired property during the relationship that can be divided equitably between them. Equitable distribution cases are based on the year the parties got married and are similar to a divorce case. In other words, the same rules apply to a case for equitable distribution of property for both married people and unmarried people who were cohabiting in North Carolina. Cohabitation agreements entered into between parties before or during their relationship will be recognized by the courts in North Carolina unless they are determined to be "unconscionable" or unfair at the time the agreement was entered into. If they are found to be fair to both parties, the agreements will be enforced. If they are determined to be unfair, the agreements may not be upheld. Cohabitation agreements are an important tool that help protect the parties’ rights and can make it clear on how the parties plan to handle issues relating to support or property distribution.

Benefits Associated with a Cohabitation Agreement

The benefits of having a detailed cohabitation agreement are numerous. The most obvious is protection of assets, whether that be property acquired before or during the relationship, pension rights, or even family heirlooms. It can also protect either cohabiting partner from incurring debt or other liabilities caused by the actions of the other. For example, a cohabitation agreement can provide that neither party can rack up any new debt over a certain amount without the other’s consent. A cohabitation agreement can also clarify the financial responsibilities of each party. The agreement can address responsibilities for taxes, mortgages, utilities, groceries, pet care, personal property and responsibility for any injury to a third party. In addition, it can also set out procedures for splitting the co-mingled assets in the event of a break up. If the parties cannot agree, they can use a predetermined method, such as arbitration or mediation to resolve the differences, rather than litigate. Finally, a cohabitation agreement can promote future planning. For example, two parties who have children from previous relationships may wish to address the issue of who pays for their children’s religious education, or tuition for college. The parties may also wish to address how they will pay child support if they go their separate ways. To summarize, a written cohabitation agreement is the best way to protect you and your partner from future litigation and stress.

Formation of A Cohabitation Agreement

A common misconception is that a cohabitation agreement (also called a non-marital cohabitation agreement or a domestic partnership agreement) must address the same things as a pre-marital agreement. While some of their provisions may be similar, it is important to understand that the function of a cohabitation agreement is quite different from that of a pre-marital agreement.
A cohabitation agreement is not a contract entered into prior to marriage that will determine the distribution of assets in the event of a divorce. Rather, a cohabitation agreement is an agreement that lays out how property will be divided upon separation, how joint bills will be paid and whether one partner will be required to pay spousal support to the other.
A cohabitation agreement is not subject to the same statutory requirements as a pre-marital agreement. For example, a cohabitation agreement does not have to be in writing, but without such a provision in writing, it is very difficult to prove what the parties agreed to.
There is no statute requiring that parties use attorneys or that they file the cohabitation agreement with the courthouse. However, just like you may with a pre-marital agreement, it is a good idea to consult with a lawyer to make sure that your agreement complies with North Carolina law. You may also want to make sure that each party has separate counsel.
When drafting a cohabitation agreement, there are several factors to consider. The first and foremost is deciding whether you want the agreement to be enforceable in court. If the answer is yes, then the agreement must be in writing, signed by both parties and should be notarized.
Other considerations include how expenses will be paid if the parties contribute different amounts, determining what will happen to property that one party acquired prior to the cohabitation agreement, addressing whether a party will be required to pay support for the other party and addressing what will occur with joint property upon separation.
For example, if the parties wish to separate and one party wants to stay in the residence, the agreement could provide that joint property will be appraised by an independent appraiser, that one party could buy out the other party’s interest in the residence or that the property be sold and the proceeds equally divided.
If you plan on entering into a cohabitation agreement, it is always best to consult with an attorney to make sure that you consider all of the potential issues involved and that you have the right to appeal to the court in the event that you need to enforce the agreement.

Typical Provisions Found in Cohabitation Agreements in North Carolina

Most cohabitation agreements contain some version of the following clauses. But even agreements containing these clauses should be read with care, as they may give rise to new arguments down the road. Property Division. Many cohabitation agreements contain clauses that address how the parties’ property will be divided in the event they break up. For example: After five years of cohabitation, the parties will decide jointly how to distribute the property listed on Exhibit A hereto. If they cannot agree, the earliest to make a claim is to receive the property. Marital-type debt responsibility. Cohabitation agreements may also contain clauses imposing responsibility for debts in a way that closely resembles equitable distribution in North Carolina. For example: (1) Each party shall make car payments for his or her own automobile. (2) The parties jointly own a Mercedes. Payments shall be made jointly until the Mercedes is paid off . Then the party who wants to keep it will pay the others $500 per month until the other is repaid. If the parties cannot agree on who keeps it, the parties will lose possession of the vehicle. Spousal support. Parties may even provide for spousal support using democratic means, such as: Every three years, the parties will hold a vote on whether to continue to reside together or, if they are economically dependent upon the other, to provide "spousal support." The initial vote will be held immediately and results may be inferentially read as the decision of the voters in subsequent elections. Or they can use a more objective measure, such as: If Party A’s total income exceeds Party B’s income by $20,000 the difference will be divided equally for use by both parties. Parties can also adopt language that allows the recipient of child support to ask the court to award him or her support to meet the same standard that governs spousal support.

Implementation and Breaches

Cohabitation agreements are enforced in the same manner as any other contract. However, for a cohabitation agreement to be enforceable in North Carolina it must contain certain language. According to North Carolina law, a cohabitation agreement will only be deemed to be supported by consideration if both parties exchange pledges of fidelity, financial support, or the provision of a sexual relationship. The contract must also explicitly waive or disclaim any right to alimony. If an individual wishes to enforce a contract, they file a lawsuit in their local courthouse and follow whatever rules apply to contract enforcement actions. When necessary, the court will engage in a fact-by-factor analysis to determine whether to enforce the agreement or provide some other remedy. Once an agreement is made there is no going back. If one party to a cohabitation agreement wishes to contest the terms of their agreement the aggrieved party will file a counterclaim in the contract action. In the alternative, either party can pursue an action for declaratory judgment asking the Court to declare a cohabitation agreement invalid or enforceable.

Limitation and Considerations

Couples should not try to create a cohabitation agreement as a substitute for a traditional marriage contract. Most notably, the agreement cannot provide for issues such as child custody, child support or visitation. Even if the parties attempt to include these issues in their contract, the court will not enforce the agreement upon the dissolution of the relationship.
It is generally recognized in this state that courts have the authority to award child custody, to award child support, and to determine visitation rights for non-custodial parents, based upon what is in the best interest of the child. Neither can a cohabitation agreement limit this authority, nor are the withholding of visitation or the suspension of child custody rights enforceable.
Another important consideration for couples establishing a cohabitation agreement is the spousal support post-separation. As indicated earlier, an agreement can allow a couple to define and provide for the financial obligations of one partner to the other during the period of separation. However, if the parties later decide to marry, what happens to these obligations? If the agreement is silent on this issue, the resulting problems could lead to an expensive lawsuit to resolve the matter. An award of alimony is a creature of statute.
Another consideration is the enforceability of the provisions of the agreement themselves. The agreements may lack consideration or may be deemed unconscionable by the court. The court will also consider the following factors when determining its enforceability.
Because courts are reluctant to disturb the sanctity of marriage, and because equitable distribution statutes apply only to married persons, it is generally not advisable for unmarried couples to enter into a cohabitation arrangement. This could lead to protracted litigation over their property after the relationship ends, causing more heartache than the relationship itself.

Summary

Cohabitation agreements provide unmarried couples with certainty as to their intentions and desire to share their lives, as a married couple does. Unlike Valentine’s Day or a birthday, we cannot predict the future . Pursuant to the North Carolina Uniform Premarital Agreement Act, such agreements are enforceable as long as they are entered into voluntarily and without duress and confer significant rights. If you or someone you know is considering moving in together, you should consider proper legal advice to protect your interests.