Law Articles

What legal rights do cohabiting couples have and how can they protect their assets on separation? 30/05/2022

The number of couples choosing to live together without marrying or entering a civil partnership is rising. Given that such couples are not protected in law to the same degree as those who are married or in a civil partnership (there is no such thing as a common law spouse), it is important that they have some way of legally protecting their assets in the event of the relationship ending.

The most common area of dispute relates to ownership of property, including the family home. Jointly owned property is a joint asset. The situation becomes complicated where, for example, the family home is owned by one party, but the other has made financial contributions to it by way of home improvements, mortgage payments, deposit on purchase etc. and wants to be financially reimbursed or claim a share in the property following separation. Another example is where the property is owned jointly, but only one party has paid all or most of the mortgage payments or spent money on home improvements etc. and wants more than their 50% share of the property by way of compensation. Another frequent occurrence is where one party owns a property in their sole name and the other pays rent. Payment of rent is very unlikely to give the paying party any beneficial interest in that property.

Aside from property, other joint assets such as bank accounts and debts can also result in dispute. Jointly held bank accounts are joint assets. Any items purchased using funds from a joint bank account are joint assets. The same applies to debts – an overdraft in relation to a joint bank account is a joint debt, so both parties are jointly and severally liable for it. Bank accounts held in sole names belong to the named account holder. Sole debts are the responsibility of the person named on the debt.

Unless the couple can reach agreement about such disputes following separation, they may well find themselves having to issue court proceedings. The law in this area is very complicated, the court proceedings are lengthy and complex, and for most people such proceedings are simply not viable given that the legal fees are likely to be disproportionally high.

To avoid potential disputes on separation, it is better to have a Living Together Agreement (otherwise known as a Cohabitation Agreement) drawn up at the outset. A Living Together Agreement is usually enforceable if it deals with the couple’s property and finances, they entered the agreement freely, provided each other with full financial disclosure and each had independent legal advice regarding the terms of the agreement. The agreement should also be regularly reviewed and amended to ensure it is up to date.

Every Living Together Agreement will be different, depending on what each couple wants to include in it, but such agreements usually cover things such as how the family home and other property will be owned (jointly or in unequal shares), who will pay the bills and mortgage, who will pay debts etc.

An alternative to having a Living Together Agreement, especially if the only asset is a property, is to have a Trust Deed. A valid Trust Deed recording the intentions of the parties regarding ownership will, in most cases, be held to be binding and will likely avoid the need for expensive court proceedings if the relationship ends.

Moving on to pensions. Cohabitees do not have any rights to share in their partner’s pensions so, if you wish your partner to receive a survivor’s pension after your death, you should nominate them using the prescribed forms from your pension provider.

Cohabitees do not have an automatic right to share in their partner’s estate on death either. So, if you want to ensure your partner receives some or all your estate, you must make a Will recording your intentions. You can also appoint guardians for your children in your Will.

When making a Will you should give serious consideration to the tax implications of your death. Spouses and Civil Partners do not have to pay inheritance tax on assets given to them upon death by the other party whereas cohabitees do (tax is payable on any value in an estate over the nil-rate band). This can cause series problems for the surviving partner if they cannot afford to pay the tax due to lack of liquid funds, which in some cases means the family home must be sold to pay the tax.

Another tax issue to look out for is stamp duty, which is payable on the transfer of a beneficial interest in the property from one cohabitee to another.

For further information and advice on this issue, and other family law issues, please contact us for a free initial consultation on 01992 306 616 or 0207 956 2740 or email us.