Onour journey to FIRE is about financial independence and preferably, of course, quitting work a little earlier. That means getting it right for yourself in the broadest sense. Income, retirement, investments, side hustles…but so too when you live with a partner.
Ps: Did you know that 76% of women are unpleasantly surprised about their financial situation when they break up with their partner or their partner dies? This is a bizarrely high percentage and has to do with the fact that there is still often an old-fashioned division of roles. That’s fine, but 40% of couples break up. Pretty plausible, then. Be aware of your and your partner’s financial situation and be prepared.
How we mean that? Very succinctly, you want to be able to continue your journey to FIRE and have things taken care of for yourself even when things go wrong. Because of course you love your partner, you grant each other everything and your common goal as a family is hopefully FIRE as well. But what happens when the world between you stops looking so rosy for a while? Is it then well settled between you and your partner?
We want to emphasize that the legal issues surrounding cohabitation can be very complex. We try to explain the basics to you as best we can but everyone’s situation is unique. Therefore, it is always wise to request a customized consultation with the Notary Public.
Cohabitation contract or registered partnership?
In the Netherlands, there are two options (actually 3) to legally make cohabitation with each other official. Marriage (we are not counting those for the moment), a cohabitation contract and a registered partnership.
In this piece, we will cover two options and assume that you actually live with your partner or plan to do so. Because make no mistake, cohabitation does involve some legal and financial hassles in the long run. Especially if, for example, relations are skewed because you are going to live together in the other person’s condo. Or when one has his own business, considerable assets and the other does not. Or when there are (upcoming) children. How do you arrange the whole shabang?
Issue of principle
In short, the choice between the two options comes down to a “matter of principle. Because with both, you have a legal commitment in which you can have anything you want recorded. So what about those principles? A registered partnership most closely approximates “marriage. You just don’t give each other the “yes word. If you enter into a civil partnership and you never plan to get married in the future, then “who cares. If you do plan to get married in the future, the romance is legally a bit off if you have previously entered into a registered partnership. Indeed, did you know that if you want to convert the registered partnership into a marriage, this ceremony must take place in the municipality where the registered partnership was entered into? So say goodbye to those idyllic wedding venues in Italy….
Registered partnership
When entering into a registered partnership, since Jan . 1, 2018, the regulations have been such that this is done automatically in limited community of property. That is, all of your accumulated assets from before the date of entering into the registered partnership remain yours. Anything accumulated after that date is joint assets. So by this is really meant everything. Income coming in on (separate) accounts, the purchase of a new car or house, income from your business, income from investments, etc.
Partnership condition
If you do not want this, it is possible to have partnership terms drawn up through a notary when you are in a registered partnership. In this document you can have it established how you want it arranged with the accumulation of assets after entering into the registered partnership. So you leave mostly “exclude” in this paper.
Inheritance Law
With a registered partnership comes automatic limited inheritance. If one of you dies unexpectedly then the other inherits the movable and immovable property. It becomes a different story when children are involved. Children are entitled to a “child’s share” in the event of the death of 1 of the parents. For 1 child it is 50% and for 2 children it is ⅓ per child, etc etc. This child’s share should be thought of as a claim that is converted into “payout” only when the surviving parent also dies.
Children
Yet another additional benefit with a registered partnership is that in the case of unborn children, your partner is automatically recognized as the father, it receives the father’s last name (old-fashioned hear….) and the father receives legal (joint) parental authority. Thus, the partner only needs to declare the birth of the child.
Testament
Optional but strongly recommended is to have a will made when entering into a registered partnership. This sounds tremendously heavy but saves a lot of hassle in case of death. Things you can include in a will are child custody in the event of death, who will manage your finances in the event of death while there are still minor children, and distributing your assets to the families in the event of the death of the entire family.
Cohabitation Contract
A cohabitation contract really only stipulates what you yourself want. Unlike a registered partnership, here there is no principle of limited community of property, but you start the contract blank. If you have a registered partnership with a partnership agreement to exclude mainly arising issues from the limited community of property (such as joint accumulation of assets), then a cohabitation agreement is quite suitable to “include. So this is especially useful in situations with a “skewed distribution” as mentioned earlier. For example, when one has their own business and the other has a house to buy and you want to keep everything “separate” for the first few years especially. Usually a standard cohabitation contract then consists of a division of (joint) household contents and means of transportation.
Inheritance Law
With a cohabitation contract, there is no inheritance law. After all, you are not partners with each other before the law. Should anything happen, the first heir is your child or the family of the partner who dies.
Children
Even in the case of unborn but prospective children, a little more needs to be arranged than with a registered partnership. However, these are not very complicated issues. The father acknowledges at the municipality his unborn child and thus he declares that he is officially the father of this child. This also allows the child to take the father’s last name after birth. The second consecutive act is for the father to declare the birth and the third and final act is for the father to apply for joint legal custody. These days, by the way, almost everything can be done digitally.
Testament
Then that will again… Because still, even with a cohabitation contract, it is wise to think about a will when things between you are going to get serious financially and in terms of children. What you draw up in a will with a cohabitation contract is the same as what you need to think about with a registered partnership.
CD from you, CD from me….
In the event of a break up, a cohabitation contract will get you there faster. After all, this contains the division that you neatly execute and then have the contract dissolved. This should be done with a notary public or lawyer. Clean and simple. With a registered partnership, this is different. If there is no partnership agreement then the division of joint assets is 50/50. Yes even if you have always brought in more than your partner. And also on the portion you accrued in pension during the registered partnership. Also, with a registered partnership, you have maintenance obligations which means spousal support comes into play in the event of a breakup.
Exceptions to the rule
What we would like to touch on in the case of our FIRE mission is the situation when 1 of the two partners has a house to buy or their own business. In the case of a house for sale, this is well settled for both a registered partnership and a cohabitation contract. Still, there are exceptions you should consider in desperate times (preferably before).
Purchase house
Suppose 1 of the two partners owns a house to buy but you want to keep it separate until you buy a new house together. Still, the other partner would like to contribute to the mortgage costs of this house. After all, he/she lives in it so uses all the facilities. Then it is wisest that he/she only contributes to a portion of the mortgage interest payment. When contributing to the repayment, this can become a thing at the time of separation. By the way, the same goes for co-paying for an investment in the house. So keep this separate for both a registered partnership and a cohabitation contract!
Own business
The issue of having your own business while your partner is employed is especially something that is awkward in a registered partnership. This is because with a registered partnership, you have maintenance obligations and have to contribute proportionally to the joint household pot. The self-employed among us will agree that the hours you work in your own business can sometimes be more than the hours you work as an employee, and that this is not always proportional to your income. And therein lies the crux; the person with the own business who makes 60-70 hours in the week should contribute proportionally much more to the joint household pot. Not ideal… If you also want to protect your partner from any debts and other problems that may arise from your business, you should have this properly recorded in a partnership agreement or opt for a cohabitation contract. Especially if you just want to keep other affairs split as well.
Follow your heart but take your head with you
We can’t give you the best choice between the two option. This is because situations between lovers are often a tailor-made package when it comes to the legal aspects. What we can be very adamant about is just getting it right. Have the conversation with your partner and arrange through a notary properly. For yourself and for each other. Also, just be down to earth and realistic in this because now you grant each other the best but will that still be true in case of turmoil? They are usually not the nicest conversations, and of course you don’t want to think about a situation where you break up. But also realize that when the relationships are different, both of you are fighting at the cutting edge. And all is fair in love and war.
