In some relationships, one person works outside the home while the other cooks, cleans, shops, and otherwise takes care of the place. This sort of division of labor can raise questions such as whether the homemaker should be compensated. One suggestion is to pay the stay-at-home partner a weekly salary.
Let’s take the example of Ted and Joanne. Ted is 45, divorced, and has custody of his two children. He’s a physician with an annual after-tax income in excess of $350,000. Joanne is 38, also divorced, with custody of her child. Her ex-husband only occasionally pays child support. Ted and Joanne decide to live together and agree that Ted will earn the money and Joanne will take care of the children and of the household full-time. They want to write a contract that will provide Joanne with fair compensation for housework and child care, but not give her any rights to Ted’s property should they separate.
One preliminary problem Ted and Joanne face is valuing Joanne’s services. Should her pay be based on what the cheapest local domestic workers charge or what a high-quality teacher gets paid, or should it be based on Ted’s income? Also, should Joanne have some responsibility to provide some of the household and child care services without compensation? After all, she and her child live there too.
Although there is no one answer to these questions, it often helps to list all factors that either feels ought to go into deciding how much the stay-at-home worker should be paid, and then to work out a compromise agreement that feels good to both. In our view, the two most important factors are that:
• the household worker have enough income (money of his or her own) to achieve a substantial measure of financial independence, and
• both members of the couple feel the amount is more or less reasonable.
The Sample Agreement Covering Homemaker Services shown here provides one model you can follow for this type of situation.
Before you prepare this type of agreement, make sure you give some thought to the tax implications of your arrangements. Giving your partner more than $13,000 per year can trigger a gift tax obligation, and paying “wages” to a partner for domestic services can trigger Social Security and income tax withholding obligations. In some instances, therefore, it may be more prudent simply to have the higher-earning partner pay more of the joint expenses.
Ted Corbett and Joanne Lewis agree that they plan to live together. They hope to be in a committed, long-term relationship that will provide love and nurturing for both themselves and their children. In a spirit of fairness, and to help this come about, they agree that:
1. Ted will continue to work as a physician. He and Joanne expect that he’ll work 50-60 hours a week and will have little time or energy to care for the home.
2. Joanne will work in the home raising the children and doing most of the domestic chores including the cleaning, laundry, cooking, and gardening. Ted will pay Joanne $800 a week for her services, over and above the costs of running the home as set out in Paragraph 7. These payments will be adjusted from time to time to reflect changes in the cost of living.
3. Ted will make Social Security and other legally required employer payments for Joanne as his employee and will pay for medical insurance coverage for her and her son, Tim.
4. All real and personal property owned by either Ted or Joanne prior to the date of this agreement will remain the separate property of its owner and cannot be transferred to the other person unless this is done in writing. We have each attached to this contract a list of our major items of separate property.
5. As of the date of this agreement, all property owned, earned, or accumulated by Ted or Joanne will belong solely to the person earning or accumulating it. The home and furnishings will be provided by Ted and owned solely by him. All property purchased by Joanne with her earnings will belong to her.
6. The separate property of either Ted or Joanne, owned now or acquired in the future, cannot become the separate property of the other, or the joint property of both, except under the terms of a written agreement signed by the person whose separate property is to be reclassified.
7. Ted will provide reasonable amounts of money each month to provide food, clothing, shelter, and recreation for the entire family as long as he and Joanne live together. By doing this, Ted assumes no obligation to support Joanne or her son upon termination of this agreement.
8. Either Ted or Joanne can end this agreement by giving the other two months’ written notice. No reason is necessary. During the two-month notice period, Ted will continue to provide Joanne with a home and continue to pay her salary.
9. Any dispute arising out of this contract will be mediated by a third person mutually acceptable to both of us. The mediator’s role will be to help us arrive at a solution, not to impose one on us. If good faith efforts to arrive at our own solution to all issues in dispute with the help of a mediator prove to be fruitless, either of us may make a written request to the other that the dispute be arbitrated. If such a request is made, our dispute will be submitted to arbitration under the rules of the American Arbitration Association, and one arbitrator will hear our dispute. The decision of the arbitrator will be binding on us and will be enforceable in any court that has jurisdiction over the controversy. By agreeing to arbitration, we each agree to give up the right to a jury trial.
10. This agreement represents Ted and Joanne’s complete understanding regarding their living together and replaces any and all prior agreements, written or oral. It can be changed, but only in writing, and any changes must be signed by both parties.
11. If a court finds any portion of this contract to be illegal or otherwise unenforceable, the remainder of the contract is still in force and effect.