Cohabitation Agreements: What's all the fuss and do I really need one?

We have previously written about the “common law marriage” myth: the belief by unmarried couples that they will get the same protection from the law as married couples do. Whilst we desperately await changes from Parliament, it is important to make sure that you give thought to what you can do to protect your financial interests if you are currently cohabiting or intend to do so in the foreseeable future. One way to protect yourself is with a Cohabitation Agreement.

What is a Cohabitation Agreement?

This is a written document that sets out how existing assets are owned and how future assets will be owned; it records who will be responsible for utilities and outgoings and, more importantly, how your finances should be divided if you ever decide to separate. A Cohabitation Agreement is not intended to put a strain on your relationship. In fact, it is put in place to address the elephant in the room – in other words, your finances. Making sure you are both on the same page can help your relationship go from strength to strength. It gives you the ability to build on a bond of trust through honest conversations and it means questions about your finances won’t continue to fester in the background.

What are the advantages of a Cohabitation Agreement?

The biggest advantage is to protect your financial position, especially if you have children. A Cohabitation Agreement is as important to the person without assets as it is to the person with them. It will help you safeguard your position whilst you are alive and mitigate any claims against your estate following your death. Please note that if your estate is to be distributed in the way you want, you must have made a will. This is particularly important if you are cohabiting because your cohabiting partner will not automatically be entitled to your estate in the same way as a widow/widower in a marriage. Our Wills, Trust and Probate Department can help you make a will that takes account of your own specific circumstances.

When do I need a Cohabitation Agreement?

If you are already living with a partner or intend to do so, you should consider a Cohabitation Agreement.

There are several reasons that clients want to put a Cohabitation Agreement in place. Here are just a few:

• They are about to live with a new partner
• They are purchasing a property
• The tenancy agreement is going to be changed to record all occupants of the property and bills are going to be shared
• They plan to have children together or are expecting a child
• One partner is due to receive an inheritance
• They intend to contribute towards the other’s property – for example by a direct financial contribution or perhaps by a family member helping with building works – and as a result, the value of the property will be increased
• They intend to merge their finances, for example by opening a joint bank account or taking out a joint loan for an item of furniture or a holiday, etc.
• They have gone through a marital breakdown once and do not wish to undergo an acrimonious separation again
• They are planning what will happen to their estate following their death
• They are planning on bringing a fur baby (in other words, a dog!) into the family and will be sharing the costs associated with the new member of the household between them.

There are many more reasons to think about a Cohabitation Agreement and almost every client we see has a reason that is personal to them.

Are there any disadvantages to a Cohabitation Agreement?

In short, no, but we do find that people regard having a Cohabitation Agreement as unromantic and likely to rock the boat if the topic is raised with the other half. We take the view that this should not put you off having an Agreement in place. After all, it is there to protect both of you and the more you are able to speak about these matters openly and plan for every eventuality, the easier it will be for you to protect yourselves should you separate. It also makes it much more likely that you can remain amicable post separation.

As with most things, there will some initial costs associated with drawing up a Cohabitation Agreement but these are kept to a minimum if you can agree the terms directly between the two of you. If you find that too difficult, mediation is available to help you think objectively about what you want for the future, but if you choose this path you will both need independent legal advice to ensure that you understand your rights and what you are agreeing to. Although you may feel that the costs associated with independent legal advice or preparation of the Agreement are not worth it, in our experience a Cohabitation Agreement is an investment that can save you thousands in legal fees in the long run and give you financial security. Not least, it can save you an enormous amount of stress should you separate.

Is a Cohabitation Agreement enforceable?

A Cohabitation Agreement is enforceable by the court. If the need arises, the court will want to be satisfied that the Agreement was executed properly, there was transparency between you at the time (with financial disclosure, if possible), there was no pressure or undue influence by the other, and you have both obtained independent legal advice on the terms of the Agreement at the time of signing.

A Cohabitation Agreement can also mean you don’t have to attend court. Often we find that the disputes relating to cohabitees arise in respect of property ownership; for example, the property has been treated as a family home but only one partner is on the legal title. Or it may be that the property is held jointly but the shares are not defined and so one person claims that they own more than 50%. A Cohabitation Agreement can clarify any misunderstandings and record how the equity in a property is to be split upon separation. Without a formal document setting out an intention you may find yourself in court – and that can be very expensive as well as stressful.

For more information

If you are not sure if a Cohabitation Agreement is for you or whether you should have one in place, please feel free to get in touch and we will be happy to have a brief discussion with you. We offer an initial 15-minute telephone consultation free of charge.

The author of this blog is Farrah Harvey-Nawaz and she can be contacted on 01245 453818 or email me at [email protected].