Cohabitation agreements
In our latest blog article, we take a look at Cohabitation Agreements.
Common Law Marriage
There is a common misconception that a partner automatically acquires rights equivalent to those in the event of marriage or civil partnership by virtue of cohabitation. The “common law marriage” myth is just that and leads to many believing they have financial protection in the event of a breakdown of their relationship, but that is far from the reality.
Whilst many tabloids still love the idea, in actual fact, upon the breakdown of a relationship where the couple are unmarried, cohabitants have to rely on the law of contracts, or trusts and property in relation to interests relating to property or, in some circumstances, can make a claim on behalf of a child.
This is in contrast to married couples or civil partners who have the protection of specific legislation which sets out the factors a Court will use to deal with disputes in relation to financial matters on the breakdown of such a relationship on divorce or dissolution.
Given that cohabiting couples represent the fastest-growing family type in England and Wales, it is perhaps surprising that the Government has not taken greater notice of this issue.
Cohabitation Agreements
A cohabitation agreement can be used to set out two parties’ intentions regarding any property that they own as well as other matters such as cars, savings, personal possessions, and day-to-day expenses.
If you are a parent considering making a loan or gift to a child, or a child considering accepting a contribution, and if you are in a relationship, then we will be able to advise on the best way to protect that contribution. Parties should also seek separate tax advice about the implications of any potential gift, loan, or other arrangement before proceeding.
What is a Cohabitation Agreement/Cohabitation Deed?
A cohabitation agreement is a written, signed document, often signed as a deed in front of witnesses. It will generally deal with three principal areas:
1. Who owns (and owes) what at the time of the agreement, and in what proportions.
2. What financial arrangements you have decided to make while you are living together.
3. How property, assets, and income should be divided if you should split up.
Where the agreement is properly drawn up, the terms are reasonable, and each of you has had separate, independent legal advice on its effect, a Court is more likely to uphold the agreement in the event of a dispute.
When Should I Make a Cohabitation Agreement?
You can make a cohabitation agreement at any time, whether you are about to start living together or if you have been doing so for many years. We can help you negotiate this agreement and write it in a way that is likely to be respected by the Court in case there is ever a dispute about it.
Why Have a Cohabitation Agreement?
Unlike divorce, there is no particular set of rules that automatically applies if you split up from someone you have been living with. There is no such thing as ‘common law marriage’. Living with someone for a certain period of time doesn’t mean you are automatically entitled to financial support or to share their property after you split up.
Resolving disputes about property without an agreement can be expensive and take a long time. Often, the costs in a modest case can easily reach £50,000–£75,000 for each party and take up to 18 months to resolve.
Such cases are highly technical and require experienced specialist solicitors and barristers. A good cohabitation agreement can mean that areas of potential dispute on separation are reduced or eliminated for a fraction of the costs set out above.
What Can Be Covered in a Cohabitation Agreement?
Your Shared Home
It is important to record how the home is owned, and whether there has been any separate agreement or promise that isn’t currently reflected in the legal documents. Who is paying the mortgage? If there are any endowment policies or other savings arrangements linked to a mortgage, what contributions are being made to those, and how will they be dealt with if you split up? Are you going to insure each other’s lives?
Money and Paying Bills
Many people find it convenient to have a joint bank account when they live together but need to decide what contributions they are going to make to that account. Will the contributions be equal, and if not, will you consider the money in the joint account to be equally owned? What will the joint account be used for, and when should your personal accounts be used instead? If you’re not using a joint account, who will pay which household bills, and will this be considered an equivalent contribution to something else? What about credit cards and debts?
Pensions
Pension sharing, making a transfer between the parties’ pension funds, might not be available outside of divorce. Pension funds sometimes give you the opportunity to make provision for loved ones. You may wish, for example, to agree on nominations for death-in-service benefits.
Personal Possessions
You should consider who owns and/or will keep items such as furniture and cars. It may be worth setting down any rules about ownership of important things now or a way to resolve disagreements about them in the event of a separation. For example, each of you could pick in turn from a list of items.
Children
Although not legally binding, it is worthwhile considering whether you might like to provide for any children over and above the minimum expected by the child support system in the event of your separation. This could include school or university fees (including VAT) and setting down some expectations about how children would be cared for if you were to live apart.
Updating a Cohabitation Agreement
One of the key benefits of a cohabitation agreement is its flexibility. As circumstances change—such as purchasing a new home, having children, or changes in financial contributions—the agreement can be updated to reflect your new arrangements. Updating a cohabitation agreement is straightforward and ensures it remains relevant and fair to both parties. To amend your agreement, both parties will need to consent to the changes, and it is advisable to seek independent legal advice to ensure the updated agreement continues to offer the protection you need.
In the event the parties enter into marriage or a civil partnership, then legislation does cover the arrangements. Advice should be obtained in advance of this to see what needs to be done to offer ongoing protections.
