Monday, May 8, 2017

COHABITATION: ARE YOU PUTTING YOURSELF IN ECONOMIC DANGER?

I have no moral objection to people living together outside of marriage. Heck, I grew up in the 60’s and 70’s. We practically invented the concept of “Cohabitation.”  As someone who has practiced Family Law for decades, I can tell you that a piece of paper does not ensure a lifelong commitment. And countless couples have a loving, lifelong bond even though they have chosen never to marry. The problem is that, after all these years, our lawmakers still haven’t gotten the message. And they fail to recognize that people who choose to share their life without a marriage license should still be able to share their property, and divide it fairly in the event of a breakup. This makes for some pretty unfair, and even economically dangerous, scenarios.

Most people think of marriage as having a moral or religious significance. But what many people don’t realize is that whether we like it or not, marriage also has a legal significance. And what you don’t know can hurt you. The fact is that the law provides certain protections for a married spouse that do not exist outside of marriage. And the results can be disastrous following the breakup of an unmarried couple.

Over the years, I have seen instances in which a couple breaks up after years of cohabitation, and one of them walks away with essentially all of the money and property while the other partner comes away with nothing. It’s heartbreaking. A legal marriage would have provided the protection that the vulnerable partner needed. But Arizona provides no protection for a cohabiting couple. Some states (like Texas) recognize “common law marriage.” Arizona does not. Other states (like California) provide some protection in the form of “palimony” (similar to alimony).  Arizona has rejected that theory. The problem is that couples who choose to live together outside of marriage are taking a legal risk when it comes to division of property and financial support.

Here are some of the pitfalls of being an unmarried, cohabiting couple:

COMMUNITY vs. SEPARATE PROPERTY

In Arizona, division of property following a marital breakup is governed by the old Spanish concept of “Community Property” Law. Under this legal concept, there are two kinds of property: Separate Property and Community Property. Following a legal separation or divorce, the husband and wife will each receive his and her separate property, and the community property will be shared equally. But if the parties are not married, there is no "community property." That means nothing is shared, and the "richer" party - the one who actually purchased the house, the car, the furniture, etc. - may walk away with everything. Here's why:

Separate Property:  Under Arizona law, separate property is anything a spouse owns before the marriage, and any property that he/she receives during the marriage by specific gift or inheritance. So, for instance, the husband’s old baseball card collection from childhood, or the family heirloom that Wife received as a gift from her grandmother – those things are separate property and will be awarded to the owner in the property division upon dissolution of marriage. If one of the spouses receives an inheritance of money from a grandparent during the marriage, the inheritance is considered separate property so long as it is kept separately or placed in an account in that spouse’s name alone. But if the money is comingled to the point where it can no longer be traced, such as being placed in a joint bank account that is used for salary deposits and payment of bills, it may lose its character as separate property and become “transmuted” (changed) to community property. Separate property also includes any increase that is tied to sale or appreciation of separate property. For example, if a spouse uses her separate funds to buy stock in a company, and the stock increases in value, the increase is considered separate property. 

When a marriage is dissolved, the separate property will be identified and awarded to the spouse that it belongs to. All other property belonging to the parties is considered to be community property, and will be divided substantially equally. 

However, if the parties are living together but aren’t married, then everything either party earns, buys, or acquires is considered to be the separate property of that person (unless the title is taken in joint tenancy or the acquisition is based on a partnership). There is no community property to be divided.

Community Property: Community property under Arizona law is defined as all property (other than separate property) acquired by either spouse during the marriage.  Under community property theory, each party owns the property equally. This means that whatever a spouse earns from his/her employment is community property, and anything that is purchased with monies earned by either spouse is community property. So, if a spouse cashes a paycheck and uses the money to buy a car, that car is community property and belongs to both spouses equally. If she or he opens a brokerage account using community funds and invests in stocks, bonds, or mutual funds, then that account, and all future growth, is considered to be community property and belongs to both spouses equally. Furniture purchased with community funds is community property. Money contributed to a pension, retirement account, or 401k by one spouse during a marriage is community property and belongs to both spouses 50/50. And if one spouse starts a business during the marriage, that business is also considered to be community property, even if only one spouse runs it.

Over the course of a lengthy marriage, couples can accumulate a large amount of community property. And if the marriage falls apart and the couple divorces, the community property will be divided between the parties essentially equally. This can provide financial security for the spouse who didn’t have the high paying job, or who stayed home and cared for the children while the other spouse acted as the breadwinner.

But here is the potential problem with cohabitation:  If a couple couple lives together but never marries, there will be no "community property" to divide if they later separate -- and the law in Arizona does not provide any protection for the “poorer” partner. This can result in a terrible inequity. Imagine a couple who has lived together without marrying for twenty-five years. During that time, one of the partners purchased a business that became a successful and lucrative enterprise. With his earnings, he purchases a massive house in a gated community (which he puts in his own name) and furnishes it beautifully, and he buys expensive automobiles (also in his name alone). He puts money in investment accounts, and retirement accounts (all in his name). He buys life insurance policies, and paintings by famous artists. Finally, he opens a joint account which he places in both partners’ names, but he only deposits a little money each month to cover household expenses.

If the parties were married and filed for divorce under that scenario, then by law everything would be considered community property and would be divided equally. On the other hand, if the parties were not married it becomes an entirely different story. All of the property – the cash in banks, the house, the furniture, the cars, the business, the stocks and investment accounts, the life insurances policies, the valuable works of art – they’re all the separate property of only the one partner. The other partner gets nothing but half of the joint bank account, and there isn’t much money there, since only enough was deposited each month to pay for household expenses. So after all those years of living together as partners in a committed relationship, one party walks away with everything and will live the rest of his or her life in comfort. The other party gets nothing and will suffer financial deprivation.

Spousal Maintenance:

In many committed relationships – whether marital or cohabiting – one of the partners will take on the role of the breadwinner, while the other remains in the home and cares for the children. This allows the partner who is not the caregiver to focus on his/her career; to advance through the ranks of the business world, and increase his/her income and earning power over the years. This type of arrangement can work well, so long as the parents’ relationship lasts.  But what happens if, after 15 or 20 years the relationship deteriorates and parties separate? The working partner might now be earning hundreds of thousands of dollars a year, with the prospect of further advancement and an even higher income in the future. On the other hand, what becomes of the partner who gave up her/his career for the benefit of the family? That person might now be his/her 50’s, no longer a young up-and-comer. Because she or he jumped off the fast track to care for the kids, the prospect of a lucrative career is now gone, and she/he may be forced to take a job with an entry-level salary. How is that fair?

Arizona law provides protection for a married person under these circumstances. The married spouse who sacrificed for the family will be entitled to financial assistance from the other spouse in the form of Spousal Maintenance. The party with the greater wealth will be ordered to financially support the other party for a sufficient period of time to allow that party to complete an education or begin a career and get on her/his feet. (In rare circumstances, the court can require spousal maintenance be paid for the rest of the former spouse's life.) In order to determine the amount that the person will receive, and how long the support will continue be paid, the judge will consider a number of factors listed in the statute. The amount of monthly spousal support will be dependent upon the lifestyle the family enjoyed during the marriage, the parties' comparative incomes, the needs of the party seeking spousal maintenance, and a number of other factors.

But the obligation to pay spousal support only applies when the parties were married. Where parties were unmarried and living together, the richer party has no legal obligation whatsoever to help the poorer party financially after the relationship ends. This lack of legal protection can especially hurt a party who gave up her/his career to stay home and care for the children.

INHERITANCE & SOCIAL SECURITY

If a married person dies without a Will in Arizona, the surviving spouse will receive the entire estate of the deceased spouse. 

On the other hand, if a person who is unmarried and cohabiting dies without a Will in Arizona, the scenario is much different. In that case, the deceased person’s property will be distributed by Arizona’s law of intestate succession – and none of it will go to the surviving partner. If the deceased person has children, then the entire estate will go to the children. If there are no children, then all of the dead person’s property will go to his/her parents; and if the parents are no longer alive, then the property will go to deceased person's siblings. Unless the surviving partner’s name is on the house, or the car, or the bank accounts, the life insurance policy etc., then she/he will receive nothing at all.

There is a similar scenario for Social Security. If a married person dies, his/her spouse will likely receive a Social Security death benefit. But if the two parties are not married, then the surviving partner will receive nothing (although the children could receive a death benefit).

This may all seem unfair – and I agree that it is. But the bottom line is this: Under the current law there are important protections afforded to married couples that are not provided for unmarried couples who are cohabiting. Our lawmakers have turned a blind eye to the reality of relationships today and, at least in Arizona, it is unlikely that they will act to close the gap any time soon.

WHAT YOU CAN DO TO PROTECT YOURSELF

Obviously, marrying your partner is one way to protect yourself but, for many different reasons, not everyone wants to take that route in life. The good news is that there are other ways to provide protection. These include setting up joint bank accounts and having both partners deposit their paychecks; opening joint investment accounts; putting together your own IRA or retirement account and having the “richer” partner put an equal amount in yours as he/she puts in his/hers; putting your name on the house title, and the car title, in joint tenancy, so that you are half-owner; etc. 

You can also protect yourself by entering into a written Domestic Partnership, or other partnership, agreement that spells out the rights of both parties and describes how property will be divided in the event that the relationship ends and the parties separate.


If you are living with a partner in a committed relationship outside of marriage, you owe it to yourself to consider whether you might be economically harmed if the relationship ends today, or even more importantly, twenty years from now.  It could mean the difference between living a comfortable lifestyle after a separation – or having to struggle financially and worry how you’re going to be able to make ends meet.




At the Law Firm of Gary J. Frank P.C., both Gary Frank and attorney Hanna Juncaj are strong litigators and compassionate counselors. Gary Frank is a Family Law Attorney with over 30 years of experience as a litigator and mediator, which includes having acted in the capacity of a Judge Pro Tempore in the Maricopa County Superior Court; and serving on the Governor's Child Abuse Prevention Task Force. Hanna Juncaj is a highly-skilled attorney and mediator with a passion for Family Law and children's issues. We handle Family Law cases in the areas of divorce, custody (now called "Legal Decision-Making and Parenting Time), relocation (move-away), division of property, spousal and child support, modification and enforcement actions, grandparent and non-parent rights, and all other matters pertaining to families and children. If you are in need of a consultation, please do not hesitate to call our office at 602-383-3610; or you can contact us by email at gary.frank@azbar.org, or through our website at www.garyfranklaw.com.   We look forward to hearing from you.