Why should couples who are living together consider a cohabitation agreement?

This week is Cohabitation Awareness Week. It was established by Resolution, a group of family lawyers, to raise awareness of the lack of legal protection for cohabiting couples.

Almost 7 million adults in the UK live together without being married, and almost half of British adults mistakenly believe that “common law marriage” exists in the UK, giving couples who live together the same rights as married couples. In fact, cohabiting couples have very limited rights compared to married couples.

If a cohabiting couple separate, then neither has any right to claim financial provision from the other – even if they were together for decades, or one gave up their own career to support the other or their children. Some couples may choose this arrangement – but more often couples who live together simply aren’t aware of their lack of rights.

Next month will see the introduction of civil partnerships for opposite-sex partners, providing a new option for couples who are uncomfortable with the institution of marriage but want legal protection should their relationship end. Couples in civil partnerships will have the same rights and protections as married couples. As well as rights on relationship breakdown, this includes tax benefits and rights on the other’s death.

Many couples, however, will continue not to formalise their relationships, perhaps because they do not want the full rights and obligations of marriage or civil partnership to apply to them.  In such cases, it may be sensible for couples to enter into a Cohabitation Agreement setting out their financial arrangements and agreements.

Financial arrangements between cohabiting couples can take many forms. For example, one party may pay the mortgage, whilst the other pays the utilities. Even if these come to similar amounts, without a Cohabitation Agreement, mortgage payments but not utility payments may be relevant when working out the interest each party has in their home in the event of a dispute. In some cases, one party may agree to work part-time or give up work to look after children, and reduce child-care costs, allowing the other to build up savings over which their partner would have no legal claim. The perceived unfairness of these default positions can be addressed in a Cohabitation Agreement.

Whilst couples getting married can enter pre- or post-nuptial agreements to set out how they would like their assets to be divided if they separate, those agreements are not binding, and the court can override them if the outcome they would produce is unfair. Cohabitation Agreements however are contractually binding, so they offer certainty. If the parties later marry, the Cohabitation Agreement will be superseded by the marriage, and so will not continue to bind the parties, though they may consider a pre- or post-nuptial agreement at that point.

Cohabitation Agreements can cover a range of issues. Many couples first enter a Cohabitation Agreement when purchasing a property.

Property ownership is complex and the shares in which a property is to be held should always be considered when a couple move in to a property which one or both of them own. Often this is done through a “declaration of trust”; the advantage of a Cohabitation Agreement is that it can cover other issues as well. The agreement should set out each party’s share of the property, or clarify that one party has no interest in the property. It should also address whether any subsequent financial contributions, such as paying the bills, mortgage payments, or paying for refurbishments or improvements, will be factored into the ownership shares, and if so how.

Issues relating to home ownership between unmarried couples can be complicated and time-consuming to resolve in the absence of explicit agreement. Under the law as it stands, much will depend on the “common intention” of the parties at the time of the purchase, which can be difficult to evidence many years later, as well as on the contributions each party made, which again can be difficult to establish if records were not kept. Setting out clear intentions in a Cohabitation Agreement can avoid the stress and expense of a protracted future dispute.

A Cohabitation Agreement can cover a wide range of other issues as well, such as:

• Ownership of other significant assets, such as a car, or valuable artwork. Often, both parties may contribute to the cost of, or use, particular assets, and so think of the asset as joint, even though the legal ownership is held by only one person. To avoid misunderstandings, a Cohabitation Agreement can set out general principles for ownership of assets such as these, or address the ownership of particular items.
• Ownership of gifts. Normally, when someone gives a gift to another person, the recipient then owns the item. Sometimes, in relationship, that may not be what is intended. For example, one party may give their partner a piece of family jewellery to wear, or a very expensive car to drive, believing their partner should return it if the relationship ends, but their partner may not share that understanding. A Cohabitation Agreement could clarify the position.
• Protecting a business. If one party runs their own business, and the other contributes to it either financially or by working in the business, and might share in the profits it produces, it’s important to be clear about what, if any, implications those circumstances will have for the ownership of the business.
• Where they live. If one party owns a property, they can give the other the right to live in it for a particular amount of time or in certain circumstances including, for example, for a set period after the owner’s death.
• Financial arrangements during the relationship and in the event that it comes to an end. The parties can set out their understanding of how their finances will operate – will they each meet their own costs, and both contribute to joint costs, or will the higher-earning party meet all the family’s costs? This can be particularly important if one party is considering giving up or reducing work in order to care for the family, and wants financial security in return for doing so. A Cohabitation Agreement could provide that one party will meet the other’s costs during the relationship and pay maintenance if it ends – or could make clear that neither party will have any financial obligations to the other, regardless of any decisions they make during their relationship.
• Responsibility for children’s costs. Whilst the court can make financial provision for children whether or not their parents are married, a Cohabitation Agreement offers the parties the opportunity to think in advance about the financial arrangements they would like to have put in place for the benefit of their children should their relationship come to an end.

For couples who choose not to marry or enter a civil partnership – or not to do so yet – a Cohabitation Agreement can be an important way of ensuring that both parties are clear about where they stand financially.

All the members of our family team are experienced in preparing Cohabitation Agreements, so if you think it might be the right arrangement for you, give us a call or send us an email and we’d be happy to advise.