Is it necessary to draft up formal agreements with the one that you love? How about… a prenup, that most dreaded of words? (no, this post won’t be about prenups :))
When we make deals with strangers and business contacts, we usually specify the details of our business arrangement in the form of a contract. Tenants sign a lease with their landlord, loanees sign a loan agreement with the bank, and employees sign a contract with their employer.
When it comes to family, friends, and lovers, however, contracts and promises tend to be informal and unspoken. Even before marriage, the promise that you will not cheat on your partner is there, and unwritten. The promise is implicitly acknowledged between both partners.
Sometimes, however, written contracts are necessary, even between partners. This is especially true when a third party is involved. Me and my girlfriend recently purchased a condo together, and we formalized this through contracts that we signed with the bank and with the builder. We currently don’t have a written contract with each other to specify what happens should one of us stop paying, get sick, or die. Our agreement with each other to hold up our own ends of the bargain is strictly unwritten and informal. We know that our lives would become a living hell should one of us skimp out.
Unforeseen events could happen that are out of our control. There are situations that can arise where a formal, written agreement is necessarily, especially in the event that one of us was to become incapacitated. An unwritten agreement between two people cannot be known or recognized by a third party. When large sums of money and property are involved, formalizing that agreement becomes important to insure against disaster and misfortune.
Here are three major life events that could take place:
- One of us could disappear or lose our ability to pay due to loss of income.
- One of us could get seriously sick.
- One of us could die.
One of us could disappear or lose our ability to pay due to loss of income.
Although I don’t see why I would stop paying, and I don’t see why she would stop paying either, strange things could always happen. One of us could lose our job and be out of work for a while, or one of us could simply go crazy and decide to become a bohemian and go hitchhiking across the country, leaving everything and everyone behind.
These things are probably exceedingly unlikely to happen, but just in case they do happen, it might be good to have a formalized agreement between us that specifies that the condo is owned 50/50 and each person is responsible for their share.
One of us could get seriously sick.
Should one of us get sick and be unable to work, that represents a huge loss of income and a huge weight on the neck of the other partner. We should set things up with our life insurance companies so that if something bad befalls one of us, the entire weight of the condo does not fall on the other partner’s shoulders. Although we can easily pay it down together, it would become a big burden if one of us became disabled.
One of us could die.
This, of course, is the worst case scenario. Not only does one of us have to deal with the loss of our life partner, but on top of it, one of us ends up with the entire weight of the condo on our necks. This also comes down to how we configure our life insurance, as well as a will for each of us that specifies how our remaining property should be divided.
Further Yakezie reading
- Well-Heeled Blog: Do You Need a Dating Prenup Before You Move In Together?
- Punch Debt In The Face: Wanna start a fight? Talk prenup
- Consumer Boomer: Do You Need to Buy Mortgage Protection Life Insurance?
So, it looks like I’m moving into another stage in my life. I never thought it would come to the point where formal agreements would be needed, but as the stakes rise, so do the potential pitfalls. I don’t think we’ll ever sign a prenup, but formalizing certain situations acts as a form of insurance against the worst kinds of events, so you aren’t just left hanging there in a sea of ambiguity! What do you think? Would love to hear even more of your stories of moving together, and moving from the boyfriend/girlfriend stage to “owning a home together” stage!