Cohabitating couples: building financial resilience on relationship breakdown

This is the second in a series of articles exploring the steps that can be taken to combat the potential risks to personal wealth that can be suffered on relationship breakdown.

This article explores the financial risks facing unmarried couples who live together and what steps can be taken to mitigate the financial impact on separation.

Several organisations, including Relate and the dating website eHarmony, have reported that Covid-19 has led to a wave of couples deciding to cohabit to avoid potentially going months without seeing one another. Cohabitation is fast becoming the new normal whilst marriage is on the decline, but financial and legal protections have yet to catch up.

The Myth of the Common Law Spouse

It remains a popular misconception that once a couple have lived together for some time, they acquire the status of a ‘common law spouse’ and with it, financial remedies on separation arising from their relationship. This is wrong, and we, as family law professionals, continue to work hard to dispel that myth.

It is wrong to say that in all situations, a cohabitant has no legal rights in the event of a relationship breakdown, but the legal remedies are extremely restrictive and based solely on the law of property and trusts, rather than any element of fairness/discretion, as would apply on a divorce.

Unless the couple start a family together, when a different legal regime applies to cater for the financial needs of any children (albeit the regime is not as generous as that on divorce), there is no obligation for one party to support the other with maintenance, and there may be no recourse to any property/a home.

The court is unable to consider the financial and housing needs of the parties unless there are children, and cannot take into account non-financial contributions to the relationship, such as looking after the home or caring for any children of the relationship.

One partner can be placed in a precarious position if the couple have been living in a home, whether bought or rented, where the legal title or tenancy is only in one partner’s name.  In such circumstances they would not have an automatic right to continue living at the property if their partner asked them to leave.

Many cohabitants are also unaware that they are unable to claim a share of any savings or assets held in their partner’s sole name which they have acquired out of their own money. This will include any pension assets the other party may have acquired.

For many separated couples, in the absence of establishing a claim, the economically weaker party, often the woman, can face a poor financial future, possible homelessness, a lack of pension and no income.

Death

The situation is also precarious on death. A surviving cohabitant has no legal right to inherit their partner’s property or assets unless the deceased left a Will making provision for them. Without a Will, the rules of intestacy apply and do not include a cohabiting partner. This can lead to costly and lengthy claims being made to challenge the estate under the Inheritance Act.

How to build financial resilience

Marry or cohabit? From a purely financial perspective, it may be beneficial for the wealthier party to cohabit rather than marry, as the family courts afford married couples greater financial protection on separation.

Make a will: Appoint guardians for children and decide whether to make financial provision for a partner if you were to pass away. If you do, you must make a will.

Talk about property ownership: Property can be owned as ‘joint tenants’, where both own the whole of the property together and in the event of death, the whole passes to the survivor automatically. Alternatively, it can be held as ‘tenants-in-common’, in equal or unequal shares, where the deceased’s share passes with a Will, or the rules of intestacy if there is no Will.

Declaration of Trust: Decide how the property is intended to be owned, and if in joint names, especially if in unequal shares, make a declaration of trust to regulate shares. This will be of major assistance if the relationship breaks down, and is likely to determine the financial split of any equity.

Talk about responsibilities during the relationship: Who funds what bills/costs can be regulated in a cohabitation deed.

Talk about responsibilities if the relationship were to end: Again, how assets or resources should be divided can be regulated in a cohabitation deed.

What is a cohabitation agreement?

A cohabitation agreement can be drawn up at any stage in a relationship, at the start or even where parties have been living together for years. It should be viewed like a living Will and updated periodically or where there is a change in circumstances, such as the birth of any children.

As a deed, an agreement can set out the couple’s intentions with regard to financial arrangements whilst they continue to live together, and the ownership of assets upon separation. It is primary evidence of the parties’ respective intentions if matters were subsequently litigated. Parties can be more or less generous than the legal position, depending on their approach.

Summary

All of these protective measures are designed to enable unmarried couples to become financially resilient by eliminating uncertainty, providing clarity and avoiding the risk of disagreement and costly litigation in the future.

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