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Cohabitation agreements on the rise but two million couples face protection gap

Paloma Kubiak
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Paloma Kubiak

More couples are seeking advice on setting up a cohabitation agreement but for two million couples, a ‘protection gap’ remains.

There are 3.5 million cohabiting couples in the UK, the largest family subset after married and civil partners, according to the Office for National Statistics (ONS).

While this group are on the rise, many may be unaware of the protections available in the case of a split.

However, more than three quarters of family lawyers have seen an increase in couples seeking advice on setting up a cohabitation agreement in the past year, according to research by Direct Line life insurance.

For unmarried couples, a cohabitation agreement provides legal protection as it details each partner’s entitlements and how assets will be divided, such as a share of a house or joint bank accounts if they split.

While interest is up, lawyers say there’s a huge ‘protection gap’ as two million cohabiting couples in the UK don’t have the safety net of a cohabitation agreement. This means they have very limited rights if they were to split and there’s unlikely to be any obligation to pool or divide assets.

A majority of lawyers (68%) believe a cohabitation agreement should be taken out by a couple as soon as they move in together or purchase a property together, particularly where one commits a larger sum than the other. For 15%, they said having children should be the trigger moment, while 14% said this should be arranged once couples take out joint financial products.

However, the agreements are open to legal challenges, just like pre- and post-nups, particularly by those who feel the terms are now not fair or don’t adequately provide for them financially. In fact, they report a 19% increase in legal challenges in the past year.

Further, an area which is often missed out in cohabitation agreements is next of kin rights, as well as current or potential for family inheritance, maintenance agreements for children and household bills. Ownership and access to pets following a break-up is also often excluded.

Chloe Couper, business manager at Direct Line life insurance, said: “It is important unmarried couples realise they have very little legal protection if they move in together and take on joint financial responsibilities, without a cohabitation agreement in place detailing how assets and liabilities like bills are to be dealt with if they split.  A cohabitation agreement can prevent lengthy and expensive court proceedings and additional emotional stress after a break-up.

“When considering financial protection people should also consider life insurance as a valuable safety net that can provide for their family in event of tragedy striking. Policies that enable couples to split the cover if they break-up can be extremely beneficial as they could offer no loss in protection for either partner should a relationship sadly come to an end.”

See YourMoney.com’s guide on how Cohabiting couples can protect their finances for more information.