It is becoming more and more common for couples to live together and start a family without getting married or entering into a civil partnership. Until the law catches up in this area, cohabiting couples need to be aware of their limited legal rights.
On our latest podcast we recently discussed the potential benefits of both pre and post nuptial agreements and how they can be influential in stepping away from a division of assets on a 50:50 basis when married couples separate.
On the flip side of the coin, it remains a worryingly common misconception that cohabiting couples (those that live together but are not married or in a Civil partnership) benefit from a similar presumption of a 50:50 spilt of assets on separation. In fact, cohabiting couples have very limited legal rights to their partner’s assets if they decide to separate.
When cohabiting couples decide to part company their assets will be distributed based on legal ownership, even if they have lived together for a long time or where one party has taken time out of their career to care for children born out of the relationship. It is not uncommon for the family home to remain in the sole name of one partner, particularly where that property was owned by one party prior to the start of the relationship, or for other large assets to be shared but ultimately owned by the financially dominant partner, such as cars or furniture. A cohabiting parent could therefore be left with no entitlement to the family home if the house is owned in the sole name of the other parent. In addition, there is no entitlement to claim a share of any other assets, including pensions, from the other, or for ongoing financial support following separation.
In a world where couples are more commonly living together but choosing not to get married, or are perhaps delaying marriage for financial reason, this is becoming an increasing area of concern.
How can cohabiting couples protect themselves?
- Get married or enter into a Civil Partnership
- Enter into a cohabitation agreement
- Ensure property is held as joint tenants or tenants in common
- Ensure you have a valid and up to date will
Marriage or a civil partnership
If marriage or a civil partnership is something you are thinking about anyway, just be mindful that you are not protected during your engagement and therefore, if you anticipate a long engagement, you may wish to consider the other options as an interim measure.
Much like with nuptial agreement, talking with your partner about how assets should be distributed should you decide to separate is not a romantic conversation, but they can be an effective means of protecting both parties. Whereas nuptial agreements can only influence the court’s discretion when dividing assets, a cohabitation agreement will be a binding contractual arrangement between the parties which is enforceable.
Couples can approach cohabitation agreements as a future financial planning exercise offering them both financial certainty. They can be varied by agreement at any time and updated as both parties positions change.
Whilst the family home is not the only asset to think about, it is in most cases the most valuable and finding affordable alternative accommodation on separation can be difficult.
Properties can be owned in 3 different ways:
- Sole ownership
- Joint tenants
- Tenants in common
Where one partner moves into the other partner’s property, consideration needs to be given to whether the couple move house and own their new home jointly or whether it is necessary to add the other partner as an owner of the property. A cohabitation agreement could also assist in setting out what will happen to the property upon separation.
If a property is held as joint tenants, both tenants hold an equal share in the property. Where property is held as tenants in common, both tenants own part of the property and they are at liberty to decide in what percentage shares that will be.
Where children are involved, both parents, whether biological, adoptive or legal, remain financially responsible for the care of those children and therefore, regardless of marriage, a parent may be required to pay child maintenance if the other parent takes on the primary care role. If child care is split equally, however, it could be that no financial maintenance is payable if, in the eyes of the Child Maintenance Service, the care is shared equally between both parents.
There are limited legal rights for a cohabiting parent to claim a share of the other parent`s assets for the benefit of their children. This may be for a cash lump sum to assist in rehousing that parent and the children. However, the asset purchased would revert back to the other parent once the children have reached adulthood.
Making a will
Couples should also ensure that they have a will setting out their intentions and wishes as there is no default presumption that assets pass to their cohabiting partner on death. In the absence of a will, assets pass according to the laws of intestacy and could therefore pass to a next of kin (sibling, parent or child) rather than the surviving partner.