Supporting a successful relationship
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Cohabitation agreements can be used by couples who decide to move in together (or have already done so), to record their financial arrangements. They can record what has been agreed on a wide range of matters, from how the property is owned to who pays the bills.
Whilst there may be few disputes during the cohabitation, the real issues emerge should the parties decide to part ways. Therefore, importantly, an agreement can be made in advance over matters such as buying each other out, who should stay in the home until it is sold and how jointly purchased possessions should be shared.
It is hard to contemplate matters of breaking up whilst a relationship is health – indeed, most couples will likely say it won’t happen or that if it did, they would part amicably due to the strength of their friendship. We would counter that by saying, better to have something you never need than to need something you don’t have. Making a cohabitation agreement does not in any way suggest either party foresees failure – rather, by facilitating frank and practical discussions, and by reducing the likelihood of arguments going forward, it helps to support the relationship’s success.
Recording property ownership
The cohabitation agreement can be used whether the property is owned by one party or both.
Where a property is jointly owned, it might seem obvious how the value should be split. However, without an agreement it is not. For example:
- A property is purchased for £100,000.
- A pays the mortgage (£600).
- B pays all the household bills (£600) and the £10,000 deposit.
Which of the following is true?
- A owns 100% of the property minus the £10,000 deposit.
- A owns 90% of the property – B owns 10%.
- A and B own 50% each less the £10,000 deposit which is added to B’s share.
- A owns 45%, B owns 55% (B paid for 10% initially and the remaining 90% is split).
Because both contributed to the purchase price, the answer is that the ownership will be what was intended by the parties. However, even if this was discussed verbally and amicably during the cohabitation, it can soon become a bitter dispute when things break down. Clearly a written record of what was agreed is preferable.
Types of relationship
The cohabitation agreement can be used whether or not the parties are in an intimate relationship. So, it is perfectly acceptable (and highly recommended) for cohabiting friends or spouses to have such an agreement.
Contents of a cohabitation agreement
A cohabitation agreement can cover a very wide range of issues such as:
- Who pays the mortgage
- Who pays the household bills
- What happens if one party wants to sell the house
- If the house is to be sold, who gets the option to buy the other party out
- How the property is to be valued
- Who owns what in the house, and how jointly owned property should be treated
- Who lives in the house if the cohabitation ends (for example, it may be that the parties agree to sell but a sale could take some time)
- Financial support for cohabitees after separation (note that there is no legal right to this)
- Living arrangements for the children after separation
The above is not exhaustive and a cohabitation agreement can be tailored to the parties’ circumstances.
Inheritance - considerations
Cohabitees currently have no rights to inherit under the law. However, they can bring a claim under the Inheritance Act (Provision for Families and Dependents) Act 1975 if either:
- They have been cohabiting for 2+ years or
- They were financially maintained by the Deceased.
Note that the provision sought might not necessarily be financial.
Such claims are expensive and stressful – they can cause friction within the family and may not bring the results you would want, if you were around to offer your view. It therefore makes far more sense to make a cohabitation agreement setting out who owns what, and to make a Will to support this. Both documents need to be reviewed regularly.
What if your cohabitee is unhappy with the arrangements you have made for them on your death? A cohabitation agreement isn’t an automatic bar to such a claim being made – but it will be one of the factors that the Court takes into consideration when making a decision as to whether an award should be granted. Where the parties have received independent legal advice, the agreement will be extremely influential – however, if the agreement was made at the outset of the relationship and was not reviewed for a substantial number of years, the Court may also factor this in – particularly if circumstances have changed substantially. Equally if the agreement is manifestly unfair, it may be held to be void. When deciding such claims, the Court will take a full range of factors into consideration, including the length of cohabitation, degree of financial dependence, the parties’ respective contributions to the family home, needs of children, needs of the other beneficiaries who will lose out if an award is made, and so on.
The best way to avoid the need for a non-owning cohabitee to bring a claim after your death is to consider what provision you should make for them and put that into effect in your Will. For example, after a lengthy cohabitation where they have contributed to the domestic budget and upkeep of the house, you might decide to give them a life interest in your home with the remainder to your children. Be aware that if you do have children, they can also challenge your generosity under the same Act, although the Court will always consider factors such as the parties’ respective needs and ability to earn and support themselves.
As before, keeping the agreement up to date with changes is essential. If for example one party receives a substantial inheritance or a new child is born to the family, the agreement should be reviewed.
Cohabitation agreements are governed by the usual rules of contract. Therefore challenges can be made on the basis of (for example):
- Undue influence
This is why it is particularly important for parties to receive independent legal advice when the agreement is made, without which, the agreement would be far easier to challenge.
Declarations of trust
A Declaration of trust is usually a separate document that also records how a property is owned.
Cohabitation agreements cover a wider range of issues. A cohabitation agreement can include a declaration of trust setting out the parties’ respective ownership of the family home.
Alternatively if the parties’ affairs are quite complex, a separate Declaration of Trust may be desirable and the two should be drafted together to avoid conflicts.
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