Miranda Fisher and Matt Foster write for eprivateclient on the consequences of cohabitation

Miranda Fisher, Partner, and Matt Foster, Senior Associate, write for eprivateclient on the financial risks of cohabitation.

Nearly all private wealth practitioners know there is no such thing as a ‘common law marriage’. Most private wealth practitioners also know that financial claims can arise between unmarried parents, although not all practitioners are aware of the potential extent of such claims.

Whilst for most separated parents, claims start and end with the Child Maintenance Service, for (U)HNW parents a claim under Schedule 1 of the Children Act 1989 (“Schedule 1”) can result in a much bigger financial award in favour of a parent, usually the mother. 

However, there is one risk related to cohabitation of which most private wealth practitioners are unaware. This risk is the product of two related legal principles:

• The Length of the Marriage - when assessing a financial claim on divorce, the length of the marriage is a key factor. This is because the ‘sharing principle’, which is what entitles a spouse to a 50/50 asset claim, relates only to ‘marital property’:
• Premarital Cohabitation - when assessing the length of a marriage, a period of prior cohabitation that flows seamlessly into marriage (as is often the case) will be added to the length of the marriage.

Taken together, this means that a marriage can effectively convert a prior period of cohabitation into a sharing claim from day one of the marriage. If the period of cohabitation is long and financially active, that sharing claim can be very significant indeed. This is often not anticipated and can catch clients (and their advisors) off guard.

Read the full piece in eprivateclient here.