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Co-habiting couples: how to mitigate your financial risk

Cherry Reynard
Written By:
Cherry Reynard

Data from the ONS has again highlighted the increasing social shift away from marriage towards cohabitation. Indeed cohabiting couples are now the second largest family type in England and Wales, and the fastest growing.

More than three million couples now choose to live together rather than marry or enter into a civil partnership. However, those couples choosing to live together in cohabitation are financially exposed, as the existing law simply fails to adequately protect them.

Alarmingly, many couples simply do not appreciate the extent of their vulnerability. For example, it remains a huge misconception that there is “common law spouse” protection for co-habiting couples, enabling them to gain certain rights similar to rights available in marriage – this is simply not true. Such perceived protection is a fallacy – common law marriage has not existed in England and Wales since 1753.

The existing legal system treats unmarried couples as two separate individuals. This means in the event of relationship breakdown, co-habiting couples in most circumstances, do not have any legal entitlement in their own right (there is legislation in place which provides certain financial provision for children) to share in the assets, pension or income of their partner. Any claims they do have are limited and must be made under complex Property and Trust Law. Conversely, in the case of civil partners or a married couple, claims for capital and pension are claims of entitlement by virtue of the marriage. Where there is a “need” for on-going financial support via the sharing of income resources, a claim for spousal maintenance can be made.

Furthermore, in the event of death of a co-habiting partner, the other has no automatic rights to the pot of money in their partner’s pension or to their partner’s property. Unless there is a Will in place, they also have no automatic entitlement to inherit their partner’s estate. If a co-habiting partner becomes unwell, unless there is a Lasting Power of Attorney in place appointing the co-habiting partner to manage personal and financial affairs, he/she will have no legal right to help their loved one. Add to all of this the fact that co-habiting partners do not enjoy the tax relief and exemptions available to spouses and civil partners, it quickly becomes apparent just how vulnerable cohabiting couples are under existing legislative provision.

To mitigate their financial exposure, cohabiting couples would be well advised to:

  • Draw up a Cohabitation Agreement

Sometimes called a “living together” agreement this is a written contract for couples who live together and do not marry. It sets out who owns what in a relationship and how assets including property, contents and savings will be divided in the event of relationship breakdown.

  • Make sure assets are in joint names

Assets, including bank accounts, savings and investments held in joint names will generally be divided equally unless there is clear evidence that the co-habiting couple have agreed something different. If such assets are held in the name of one partner only, the other will not have any entitlement to them.

  • Decide how to own your home together

When moving in together it is advisable for co-habiting couples to sign a joint lease or obtain a joint mortgage. This will provide each partner with rights to the property.

There are two options for joint ownership: ownership as “joint tenants” means that both co-owners own the whole of the property. If one partner then dies, the other will become the sole owner irrespective of any provision set out in a Will.  Ownership as “tenants in common” means each partner has separate and distinct shares in the property, which they can bequeath in a Will. This can be a useful tool to identify differing deposit payments made by a couple or where it is intended that partners will make differing monthly contributions towards the mortgage.  Where property is owned as tenants in common a Will is essential otherwise each partner’s respective share will pass according to intestacy rules and a co-habiting partner will have no legal standing.

  • Execute a Declaration Of Trust

A Declaration of Trust (often referred to as a deed of trust) enables a co-habiting couple to confirm the true ownership of a property, i.e. to reflect the proportions contributed by each, regardless of the title at the land registry. It is always advisable to execute a declaration of trust where a property is held as tenants in common or where the beneficial interest in a property differs from what is shown in the legal title.

In the continuing absence of specific legislation to protect cohabiting couples, acting proactively is essential to improve their legal position on relationship breakdown or death.

Joanne Raisbeck is head of family law at Hill Dickinson LLP