How should cohabiting couples work out their finances?

How should you work out your finances if you are starting a new relationship? During Cohabitation Awareness Week 2017 (27 November to 1 December), Sarah Evans, Partner and family lawyer at Coodes Solicitors outlines some of the legal differences between marriage and cohabitation.

In the flush of your first romance, setting up home together and thinking about your future as a couple, many people fall headfirst into living together without a thought for their financial arrangements. Some then go on to marry and this brings all the regulation of the Matrimonial Causes Act into play should they subsequently separate and divorce.

Second time better or third time lucky?

For those who enter a second, third or even fourth long-term cohabiting relationship there is more opportunity to consider – and hopefully avoid – the potential pitfalls with a little planning and consideration.

Very often by the second or third relationship, people already have their own property or assets and may have children. They may have received an inheritance and built up substantial pensions and savings. All of these factors combine to make the situation far more complicated to resolve should the relationship break down in future.

When does a cohabitee have rights to their partner’s property or assets?

We are often asked in what circumstances a cohabitee obtains rights to the property or assets of their partner. The answer is ‘it depends’. Unlike with a marriage, it is certainly not automatic, but there are some grey areas. Generally cohabitees currently have very few rights and one partner does not usually acquire the right to a share in the other’s property just because they live together.

However there is an exception: if the cohabitee can establish an interest in the property under what is called an ‘implied trust’. For example if one cohabitee says that they thought there was an understanding that if they contributed towards the property, such as by paying towards the mortgage or the cost of building work or renovations, they would be entitled to a share of it.

Protecting your property for the future

To protect the property the best option is to have a written agreement that spells this out. This is especially important if there are children to consider. Alternatively ensure that the non-owning cohabitee doesn’t pay towards the mortgage or any improvements or major renovations. While an agreement drawn up by a lawyer should offer the best security, all you need is something in writing that both parties have signed which states that the non-owner won’t acquire any rights to the property.

If your partner will be contributing towards your mortgage or putting a lump sum into the property, then you should get an agreement drawn up by a lawyer. If the non-owner simply gives a regular sum of money every month, the key issue is what they think or intend the money to be used for. If, for example, £500 a month is given towards the mortgage but is in fact used to pay the bills and buy food, that is immaterial. What matters is the belief that the money was being used to pay the mortgage.

Any payment towards the mortgage could lead to a claim being made against the property. This is because your partner technically helped you to purchase the property. It doesn’t mean the claim will succeed, but it isn’t worth the risk. Ensure therefore that you agree and record what payments are for and make sure not to use the money for a mortgage.

Why a Will is crucial for cohabiting couples

There is no such thing as a ‘common law’ marriage, so if you are not married you have no right to inherit any part of your partner’s estate, however long you have lived together. This means it is crucial for cohabiting couples to have a Will that sets out their wishes. It is also important to know that a marriage automatically overrides a Will. Therefore, if you are planning to marry your partner but want to recognise children from a previous relationship, you may need to review your Will.

For people getting divorced and starting out in new relationships later in life, the issues around finances can get very complicated. In short, the best course of action is to have a clear written agreement drawn up. The cost of this will be negligible compared to potential loss of property and assets and associated legal costs should the relationship break down.

For advice on any of these issues, please contact the Family Team at Coodes Solicitors on 0800 328 3282.