Cohabitation Agreements
What are the benefits of a cohabitation agreement?
The term ‘common-law husband/wife’ is frequently used to describe couples who live together, yet this relationship does not have legal recognition. For example, upon the death of one party, the other is not recognised as next of kin and therefore would have to go to court to claim any of the estate left. In other words, the property and assets owned by the deceased would not be automatically inherited.
The creation of a ‘Cohabitation Agreement’, can remove some of the uncertainties associated with co-habitation on the ending of the relationship. It is sensible to create a cohabitation agreement to record your intentions on how you wish your assets to be shared/divided and how any contributions should be treated. The agreement is a clear record of both parties’ intentions and helps to prevent post-separation disagreement and unnecessary need for litigation.
When to make a Cohabitation Agreement?
It’s usually a good time to start thinking about creating this when you first move in together or when you have children. However, it is still beneficial for couples that have been living together long term already, to enter into an agreement now.
You may have decided you are not going to get married? Or at least not for a good few years.
Whatever stage you’re at there is no better time than now when it comes to protecting your finances and other assets. You may find that you have differing opinions on the agreed ownership of property, and how family finances should be arranged; and the worst time to discover this would be following the breakdown of the relationship/separation – so it would be a good idea to have this discussion now.
What issues would a Cohabitation Agreement help with?
Property
Within the agreement, many different arrangements regarding the property you own/live in can be made. Who has what legal share, how mortgage payments will be handled/paid for, even what living arrangements would come into force upon a separation.
Couples living together may feel they should set out exactly what shares they own in a jointly owned property when they purchase it. This is called owning the property as “tenants in common”. The shares can be fixed or flexible and are set out in the deed that is signed when the property is purchased. This way, their respective shares can be left in a Will. Alternatively, a property can be purchased as joint tenants. When owned like this, both parties own ALL the property on trust for sale for each other, which means on the death of one party, the property automatically passes to the other. It is extremely important to take specialist advice from a family lawyer before purchasing a property in joint names.
Finances
In the case of the relationship ending it will be helpful to have a plan in place for how debts will be settled and managed and in what way any savings or other wealth will be split. Also other aspects such as, what support will be provided to any children, and how any adjustments to pension schemes will be handled; can also be agreed on.
Inheritance
In the event of one partner’s death, if no Will is left, the other will not automatically inherit anything (unless the jointly owned property is owned as joint tenants). Wills need to be made by an unmarried couple if they want to leave their partner any assets. If not enough is left in the Will of one for the other to survive on, they may be able to claim from the estate at court. Unmarried partners are not exempt from inheritance tax, as married couples are. A Will may also be useful where one party wants to leave their share of the property to children from a previous relationship but want to allow their partner to continue to live there for a set period of time.
It is also worthwhile to be aware that if you are living together and both have separate bank accounts, neither of you have access to the other’s account and the money it holds. So if one partner dies, any balance remaining in their account will form part of their estate. If there is no Will, then the assets will be divided according to the laws of intestacy (which set out who inherits what).
If you have a joint account, you both have access, regardless of who pays what into it. If the relationship ends, with a joint bank account, the money it holds will belong to both of you. On the death of one partner, the other becomes entitled to the balance and full access to the account.
Other aspects such as child arrangements, who will look after any pets, ownership of vehicles etc can all also be covered with a cohabitation agreement.
Do I still need to make a Will?
The law does not recognise unmarried couples as each other’s next of kin; consequently upon the death of one party, the other is not automatically entitled to any inheritance. It is important therefore to make a Will so that you can ensure your wishes, regarding how your estate and assets are dealt with, are known.
