More and more couples are using a cohabitation agreement to avoid the upset, disagreements and expense over who owns what and who owes what after relationship breakdown.
Unmarried couples do not benefit from the same rights as their married counterparts – even where they have been cohabiting. Should a cohabiting couple’s relationship come to an end, dividing assets can become extremely complicated, adding to the difficulties of the situation.
Tying down the practicalities of your situation before you move in together with a cohabitation agreement can help in the event you and your partner break up.
What is a cohabitation agreement?
A cohabitation agreement (sometimes referred to as a ‘living together’ agreement or a ‘no-nup’ agreement) is a written record of both partners’ agreement as to how you will own and share monies, property and other assets, including day to day finances, and what will happen should the relationship come to an end.
A cohabitation agreement can offer many benefits for couples who live together or plan to live together. For example, where one partner wants to ensure clarity in how bills will be paid and the ownership of assets, or where you want to draw up an agreement that will stand up in court should the relationship come to an end.
What should be included in a cohabitation agreement?
Your cohabitation agreement should include, but not be limited to,
- the names and addresses of each partner
- an honest disclosure of each partner’s financial situation including what they earn, what they own, and what they owe
- children – who will take responsibility for them including financially, details of payments received from parents outside the relationship or payments to be made to those parents
- the home you will live in – how is it owned – jointly or by one partner? If owned by one partner, does the owning partner want to prevent the other partner from obtaining any share in the home, or do they wish the other to have a share? What would happen if you split up? Who would the home belong to?
- household expenses – who will pay what? Will there be a joint bank account to pay for these? Who will pay what into the joint account?
- debts – how will responsibility for debts be shared out?
- savings – any savings accounts or ISAs should be disclosed
- contents and personal possessions – who owns what?
- cars and other vehicles – is ownership shared?
- pensions – who will receive this upon your death?
- ending the agreement – if your relationship comes to an end and you wish to terminate the agreement, what is the procedure and conditions?
- future renegotiations – the possibility to review the agreement should circumstances change, such as the birth of a child or one partner being made redundant
- dated signature of each partner, made in the presence of a witness
Is it legally binding?
No, a cohabitation agreement isn’t legally binding but as long as the agreement was correctly drawn up and both partners had independent legal advice before signing the agreement, the courts are likely to uphold the agreement.
What about debts and liabilities?
Under a cohabitation agreement, neither partner can be held responsible for any debts or liabilities that the other partner incurs in their name only.
The only joint responsibility will be for debts that are incurred jointly.
What will it cost to set up a cohabitation agreement?
The cost to set up a cohabitation agreement will vary depending on what you include in it and your specific situation.
It is possible to download a cohabitation agreement template with guidance notes from online legal publishers, but each partner would still be required to seek legal advice separately to ensure that any do-it-yourself cohabitation agreement adequately suits the needs of the parties in the circumstances and if it is likely to be upheld in court.
How would you end a cohabitation agreement?
Should the partners marry or enter into a civil partnership, either with each other, or with another person, then the cohabitation agreement will no longer apply.
Both partners may agree to terminate the agreement by setting up a deed instead.
The agreement would terminate, should one partner die.
One partner could end the cohabitation agreement by handing a written notice of termination to the other partner.
Should the partners have a child, or adopt a child, the cohabitation agreement would most likely not be suitable. In this case, the current cohabitation agreement could be terminated or simply amended if the possibility of amendments had been written into the original cohabitation agreement.
Finally, a cohabitation agreement would end if a court set the agreement aside.
If the relationship ends and the cohabitation agreement is presented in court, what happens to the couple’s assets? Is everything shared?
Anything owned by the partners individually before the agreement and anything they acquire independently after the agreement will be deemed to belong to the partner who acquired them.
Any belongings that were acquired jointly after the cohabitation agreement was activated are the joint property of both partners.
What could go wrong if there isn’t a cohabitation agreement in place?
As a cohabiting couple, the law doesn’t recognise your relationship in the same way that it recognises marriage or civil partnership. This means that you do not have the same rights.
For instance, should you move in with a partner and that partner subsequently dies without leaving a will, you have no rights to inherit any part of their estate. You could be forced to move out of your home and lose access to belongings or items that you feel were owned jointly.
Where a married couple have a legal right to their share of marital assets, should the marriage fail, a cohabiting couple do not.
Here’s another example. A couple move in together, setting up in a house owned by one partner (1). The other partner (2) pays the mortgage each month. Should the relationship fail, partner (2) has no claim on the property they have come to see as their home, even though they’ve been the sole mortgage payer.
Living together without a cohabitation agreement in place leaves you with very little financial protection and few rights, should the relationship fail.
What else can you do?
If you decide that a cohabitation agreement isn’t the way to go, then you can have an informal agreement between the two of you written up, but this won’t necessarily be upheld in court.
It is always wise to have a will. Dying intestate (without leaving a will) can mean that your partner has no claim on your joint home or assets. Mentioning your partner in your will guarantees what they will receive on your death, and also protects any assets that you wish someone else to have, including the guardianship of your child.
Why legal advice is important
Specialist legal advice can guide you through not only the process of setting up a cohabitation agreement but also advise you in a way that protects your assets and works in your personal favour.
With their experience and professional knowledge, they will be able to assess the benefits and disadvantages of setting up and signing a cohabitation agreement, ensuring that you and your future are protected.