Guide to protecting your assets when cohabiting

Cohabiting couples are the fastest growing type of family in the UK. An increasing proportion of couples are opting for cohabitation instead of marriage, no longer viewing marriage as the only way to show  commitment to another. However, cohabitation brings with it its own challenges, and whilst there may be no difficult divorce to end the relationship, the legal position of cohabitees is often misunderstood.  Fundamentally, there is no such concept as a “common law marriage”.

In England, we still do not have laws that give cohabitees the same legal protections as married couples in the event of a separation. There have been active campaigns for new legislation to clarify the rights of cohabitees, which continue to be commonly misconceived by the public. Law reform could be on the horizon, but we still have a long way to go to give these families the protections they need.

This guide explores what cohabitation means in the eyes of the law and where the law may be heading, the myths and truths surrounding cohabitees’ rights, the growth of cohabitation agreements, and the options available to cohabitees on separation.

New Laws for Cohabiting Couples?

There is currently no specific legal definition of what amounts to cohabitation. Socially, cohabitation is defined as a living arrangement whereby a couple who is not married (or in a civil partnership) live together in the same household. The term applies to both opposite-sex and same-sex couples.

As highlighted above, cohabiting family structures are on the rise. The Office for National Statistics recorded that cohabiting couple families were the “second-largest family type at 3.5 million (18.4%)” in 2019. Despite this, cohabitation is still largely misunderstood. The most common misconception is that cohabitation is essentially “common law marriage” (and so cohabitees have similar rights to spouses/civil partners) and indeed, one in five people believe that they have a claim to their cohabitee’s property if they have cohabited for five years or more. These are myths.

There are some notable differences between marriage/civil partnerships and cohabitation. For example:

1. Married couples or civil partners may have an obligation to provide financially for the other, both during the marriage and on separation. They can seek financial assistance for the rest of their lives. Cohabitees have neither the obligation to provide financial assistance nor the right to seek it (although in certain circumstances they may be able to make a claim against an estate after death)
2. A married father automatically acquires “parental responsibility” (the rights, duties, powers, responsibilities and authority that a parent has in relation to a child) on the birth of his child. Conversely, an unmarried father needs to be registered on the birth certificate of the child or enter into a parental responsibility agreement with the mother (or obtain a court order to this effect) in order to acquire parental responsibility for the child.

However, reform could be on the horizon. Resolution has been actively campaigning for rights for cohabitating couples on relationship breakdown or on death of a partner and in 2020, a private members’ Cohabitation Rights Bill was presented to the House of Lords, however it has not progressed further. Its aim was to offer some basic legal protections to cohabiting couples as highlighted below.

For example, it intended that cohabitees of two or more years or cohabitees with a child would be able to apply for a Financial Settlement Order on separation. These orders would not make provision for long-term commitments from either side (e.g. maintenance payments) but would allow for “clean break” type resolutions, including lump sum payments and transfers / sales of property. It was not intended to be mandatory – the idea was that cohabiting couples could opt out of it by either signing an opt-out agreement, entering into a cohabitation agreement (on which, see more below) or executing a deed of trust.

It will be interesting to see how and if these calls for reform progress over the next few years.

Rights of Cohabiting Couples

As it stands, the rights of cohabiting couples are essentially limited to principles of property and trust law, which are much more limited and restrictive in scope compared to the rights conferred on married couples under the Matrimonial Causes Act 1973.

We can consider cohabitees’ rights within three broad categories: property, finances and children.

Property:

• Many cohabiting couples rent property together. If both names are on the tenancy agreement, they are equally responsible for meeting the rent and other tenancy conditions. If the relationship breaks down, they will need to speak to the landlord about changing the tenancy agreement.
• If the property is owned, the rights of each cohabitee will depend on whether the property is held jointly (as joint tenants or tenants in common) or by one cohabitee only.

A joint tenancy is where the property is held in equal, indivisible shares. On the death of one joint tenant, the survivor automatically inherits the property (regardless of what that person’s Will says).

A tenancy in common is where each person owns a particular share in the property, be it 50% each or unequal shares, and on a sale they would each receive their share. On the death of one tenant in common, their share passes according to their Will. It is therefore crucial for cohabitees to consider entering a declaration of trust when buying a property (setting out the shares of ownership by each tenant in common) and making a Will (should they wish to provide for their partner/others upon death).

If the property is owned by one cohabitee only, usually the other cohabitee will not have any rights to the property. The presumption is that the property is held in the way it is recorded at the Land Registry, and the non-owning cohabitee would have no right to occupy the property on a separation. However, there may be an exception if they can prove that they have contributed to the deposit or mortgage payments, or made a financial commitment to the property, such as paying for substantial renovations, on the understanding that they would own a share of the property. In those circumstances there may be a a claim under the Trusts of Land and Appointment of Trustees Act 1996. Such claims are expensive and notoriously difficult to prove..

Finances:

• Cohabitees will also not have any claims in their own right for financial provision from their partner, either during the relationship or on separation. This applies to both capital and income/maintenance.
• There are no tax benefits to cohabiting, unlike marriage or civil partnership. Spouses and civil are tax exempt on gifts or transfers to the other (the “no gain/no loss” principle). This benefit extends to the tax year of separation. There is also no inheritance tax to pay on gifts to a spouse, during lifetime or on death.  By contrast, cohabitees do not receive any form of favourable tax treatment. If cohabitees wish to transfer or gift assets to each other, there may be a tax liability.

Children:

• As mentioned above, unmarried fathers only acquire parental responsibility if they are named on their child’s birth certificate.
• On a separation, cohabiting couples still have a legal obligation to support their child financially, even if the father does not have parental responsibility. Either parent can apply for child maintenance payments from the other through the Child Maintenance Service. They can also make a claim under Schedule 1 to the Children Act 1989 for financial provision (capital and/or income) on behalf of the child. The court’s powers under this Act are more limited than those under the Matrimonial Causes Act 1973 (which governs financial remedies for married couples).

Cohabitation Agreements

It is possible for cohabiting couples to avoid any one of the above situations by entering into a Cohabitation Agreement (also known as “living together agreements”). This aims to set out arrangements for finances, property ownership and children (if applicable) during the cohabitation and on a possible separation or death. They are not the same as Pre-Nuptial Agreements, albeit the overall rationale is similar.

As cohabitees do not have automatic rights like married couples, a Cohabitation Agreement can give cohabitees clarity during their relationship, such as how bills and mortgage payments are divided, as well as give necessary protections if the relationship ends, such as stating how the couple’s assets will be divided.

The best time to enter into a Cohabitation Agreement is before the couple actually starts living together, although it can be done at any time thereafter. Big milestones such as buying a property or having a child are also crucial times to consider a Cohabitation Agreement. The assistance of a solicitor will be needed to ensure the document is enforceable, but keep in mind that the costs of drawing up a Cohabitation Agreement will be minimal compared to the potential costs of a lengthy dispute in court.

Alternatively, cohabiting couples could consider non-litigious methods of dispute resolution, such as mediation or arbitration, to help them reach an agreement on separation. However, prevention is better than cure, and separating couples will have the most certainty if they have an enforceable Cohabitation Agreement in place beforehand.

Cohabiting Couples’ Rights When Separating

Some relationships naturally run their course. As it stands, the law offers very few protections for cohabiting couples, and they may find themselves in a difficult situation on separation, particularly if there are added complexities, such as one of them being in a much stronger financial position, the family home being owned by one cohabitee, or if there are children to consider. Those in a particularly difficult position are partners (often women) who give up their jobs to bring up children, and whose relationship breaks down when the children are grown up but who have no assets or income of their own.

In the absence of a Cohabitation Agreement, cohabiting couples may face an uphill battle, for example if one wishes to assert a claim on the solely owned family home, when they would have to embark on an arduous process of proving they have an “equitable interest” in the property on account of some sort of financial contribution (as explained above).

A Cohabitation Agreement can offer cohabitees the protections that they often assume they already have. It requires being proactive and realistic about a possible separation, but could pay dividends later.

Many are hopeful that in the near future, we will have a Cohabitation Rights Act that will go some way to protecting cohabitees as a matter of law. However, as we know, the law is slow to change. Meanwhile, the number of cohabiting couples continues to grow quickly. Cohabitation Agreements provide the greatest level of security against a jigsaw of otherwise inadequate protections.