When is it important for an unmarried couple to make a written property agreement?

If you haven't been together long and don't own much, it's really not necessary to make a written agreement. But the longer you live together, the more important it is to prepare a written contract making it clear who owns what -- especially if you begin to accumulate a lot of property. And, if you buy a house together, it's a good idea to create a property agreement.

If you don't create a property agreement, you might face a serious (and potentially expensive) battle if you split up and can't agree on how to divide what you've acquired. And, when things are good, taking the time to draft a well-thought-out contract helps you clarify your intentions.

What should a property agreement include?

You can tailor your property agreement to meet the needs of your relationship. The major areas of concern for most unmarried couples are:

• how property and assets are owned, and
• whether or not income and expenses are shared.

Some couples choose to keep all property owned -- a car, a house, furniture, and the like -- completely separate, while others choose to share some or all of their property by transferring part ownership to each other. You can also specify how you will own property that you acquire during your relationship. (If you decide not to prepare a comprehensive property agreement that covers this issue for all of your property, you can use a "joint purchase agreement" for major items as you buy them.)

Similarly, you may use your agreement to share or divide income and expenses in any number of ways. You can keep separate bank and checking accounts, credit cards, and insurance, or you can agree to handle some or all of these things jointly.

In your agreement, you may also want to decide in advance who gets what should you separate, or agree to a process for resolving any property disputes that arise if you part ways.

My partner and I are buying a house together. How should we cover that in our property agreement?

It's particularly important to make a written property agreement if you buy a house together; the large financial and emotional commitments involved are good reasons to take extra care with your plans. Your contract should cover at least four major areas:

• How much of the house does each of you own? If it's not 50-50, is there a way for the person who owns less than half to get an increased share -- for example, by fixing up the house or making a larger share of the mortgage payment?
• How is title (ownership) to be listed on the deed? One choice is as "joint tenants with rights of survivorship," meaning that when one of you dies, the other automatically inherits the whole house. Another option is "tenants in common," meaning that, when one of you dies, that person's share of the house goes to whoever is named in a will or trust, or goes to blood relatives if the deceased partner left no estate plan.
• What happens to the house if you break up? Will one of you have the first right to stay in the house (perhaps to care for a young child) and buy the other out, or will the house be sold and the proceeds divided?
• If one of you has a buyout right, how will the house be appraised and how long will the buyout take? Most people agree to have the realtor that helped with the purchase appraise the house and then give the buying partner one to five years to pay off the other.