Hetty Gleave discusses the rising trend of cohabitation agreements in STEP Journal

  • June 23, 2020
  • By Hetty Gleave, Partner

This article was originally published in STEP Journal Plus and can be accessed here

Hetty Gleave, Partner

Cohabiting couples are the UK’s fastest-growing family type, with cohabitation increasingly popular either in advance of, or as an alternative to, marriage.  As English law currently makes no specific provision for financial arrangements at the end of a cohabiting relationship, many couples are turning to cohabitation agreements to provide security and certainty in the event that their relationship ends.

Cohabiting couples frequently mingle their financial arrangements, and untangling finances at the end of a relationship can be complex and expensive. Moreover, the legal position will often not reflect the parties’ wishes and intentions: unlike for married couples, the court has no power to order a fair outcome, it can only make a declaration as to the legal ownership of any assets, applying the general laws of property.

The process of determining ownership of real and other property requires the court to look at the parties’ intentions as to ownership, which may be difficult – and costly – to determine many years later. Comments that may have seemed relatively unimportant at the time may take on considerable financial significance (such as the famous “the money is as much yours as mine” in Paul v Constance [1977] 1 All ER 195; in Rowe v Prance [1999] 2 FLR 787 references to “our boat” were sufficient to transfer a 50% beneficial interest in the boat).

A properly constituted cohabitation agreement is a legally binding document in which a couple who live together, or plan to do so, set out how they will arrange their finances during their relationship and in the event that the relationship ends. Issues commonly addressed include the shares in which the parties own their home, how household expenses are to be met, ownership of valuable chattels such as vehicles, furniture or art, ownership of items gifted by one party to the other such as jewellery, and whether one party is to be financially supported by the other in return for giving up their job to support the household.

Cohabitation agreements are bespoke. They are often used to protect the financially stronger party, for example by confirming that a partner moving into their home will not acquire any interest in it, even if they make a financial contribution towards it, or by setting out that any jewellery purchased during the relationship is to be returned at the relationship’s end. However, cohabitation agreements can also benefit the financially weaker party, by securing some limited financial provision in the event that the relationship ends, to which they would not otherwise be entitled.  Both parties benefit from the certainty provided, ensuring that they understand the long-term financial consequences of actions taken during the relationship, from career decisions to paying for improvements to a home owned by the other.

Cohabitation agreements are signed as deeds, so they are binding unless vitiated by fraud, duress or mistake. However, if a couple marry after entering a cohabitation agreement, it will no longer be binding, and they may then wish to consider a pre-nuptial agreement.

Earlier this year, the Cohabitation Rights Bill was introduced in the House of Lords. It would allow the court to make limited financial provision on the breakup of a cohabiting relationship where the parties had a child or had cohabited for more than three years, and one party had retained a benefit, or the other had an economic disadvantage, as a result of contributions (financial or otherwise) made during the relationship. The Bill provides for couples to be able to enter an “opt-out agreement” under which the provisions would not apply to them; such an agreement could be part of a wider Cohabitation Agreement. Whether the bill will pass remains to be seen.

The recent case of Gray v Hurley [2019] EWHC 1636 illustrates the potentially high cost of failing to have a cohabitation agreement. The decision related to the jurisdictional battle, but highlighted the substantive issues arising. Ms Gray was a wealthy divorcee, who after her divorce travelled the world on a yacht with Mr Hurley, her former personal trainer, purchasing property, investments, and supercars worth tens of millions of pounds. Many of the assets were purchased in Mr Hurley’s name or joint names, and whilst he argued that these were gifts, Ms Gray asserted that Mr Hurley exerted “undue influence” over her, invalidating the gifts. Whilst advisors often caution clients to protect their assets before marrying, this case is a reminder that wealthy individuals in unmarried relationships must also exercise caution. A cohabitation agreement clarifying the status of assets purchased during a relationship offers valuable protection.

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