Are Romantic Housemates’ Futures Financially Fudged?
Posted on 15th March 2023 at 11:56
In our previous blog, we brought up the Common Law Marriage Kerfuffle (if you’ve not read it yet, then what are you waiting for? Catch up here) and how such a thing isn’t valid in the eyes of the law.
In other words, living with a romantic partner does not give you the same legal rights as a marriage does. Cohabiting couples retain their assets when they separate irrespective of the financial situation of either party.
This is in stark contrast to married couples who need to add most of their assets to the “matrimonial pot” and divide them upon divorce, with the starting point being a 50:50 share.
We know that marriage rates are declining, with many people opting to live together rather than tie the knot. This doesn’t exclusively apply to younger people (no, Millennials haven’t trashed the institution of marriage) but also to older generations who may have had previous marriages and aren’t inclined to repeat the process.
Co-habitants are the fastest-growing demographic in the UK. The number of couples now living together without getting married or entering a civil partnership has increased from around 1.5 million in 1996 to about 3.5 million in 2020.
As one anonymous interviewee for The Financial Diet has said, “the idea of getting married seems less romantic and more like a protective action for our assets.” What’s love got to do with it, indeed!
So, with living together no longer being a stepping stone on the way to marriage, and the spousal concept of “what’s mine is yours,” no longer on the table, are romantic housemates’ futures financially fudged? Not quite: enter, the Cohabitation Agreement…
What’s a Cohabitation Agreement?
Also known as a Living Together Agreement, a Cohabitation Agreement is a legal document between unmarried couples who are living together. It sets out arrangements for finances, property and children while you're living together and if you split up, become ill or die. A Cohabitation Agreement can also help you divide up bills and other responsibilities while you live together. They may also cover:
Ownership of property
Deposit on your home
What share of the mortgage or rent you will pay
How household bills will be dealt with
Bank accounts and money
Life insurance
Pensions
Assets such as cars, furniture, other property, jewellery
Payment of debts
Pets
Next of kin rights
Pension access, property title deeds and wills should also be considered.
Is a Cohabitation Agreement the same as a Prenup?
It can operate in the same way as a Prenuptial Agreement, though there’s no marriage involved. A Cohabitation Agreement can make clear how the pre-owned assets of one partner are to be shared with the other if they should break up in the future or if the property is owned in the sole name of one party and another party moves in. It can make it clear for both partners that contributions towards utility bills by one partner may not entitle them to a share of the property itself if you should break up.
It can also protect the economically weaker partner. For example, let’s look at Berty. Berty has been in a relationship with Katherine for fifteen years, and they never got around to getting married. Berty worked as a marketing executive for a small agency, and Katherine is a consultant-level plastic and cosmetic surgeon, with a salary five times greater than Berty’s.
When Berty and Katherine decided to have children, it made sense for Berty to stay at home with the babies after Katherine’s maternity leave ended. After all, Katherine was the main breadwinner, and Berty’s small salary couldn’t support them in the lifestyle to which they’d grown accustomed. So Berty gave up his job and became a full-time house husband.
Not quite happily ever after…
After ten years, as sometimes happens, Berty and Katherine grew apart and decided to separate. But the family home was solely in Katherine’s name, and she wasn’t prepared to leave the house to Berty outright. Katherine could afford to pay for childcare and didn’t want to keep “paying” Berty to look after the house and the kids.
Had Berty and Katherine been married, Berty’s contributions in looking after the home and raising the children would be recognised as an equal contribution. However, as they weren’t married, Berty had no claim to financial support from Katherine. He had no career to return to, no claim to their family home, and no pension. He was very much up the creek without a paddle.
A Cohabitation Agreement could have protected Berty. This agreement is a legal document, enforceable by the court if it is properly executed and provided both parties have been honest about their finances and each obtained independent legal advice upon its terms.
A Cohabitation Agreement is essential for couples who live together but do not intend to ever marry. For the agreement to be upheld in court, you both must seek independent legal advice to make sure neither of you are in any doubt as to what the agreement covers and ensure there are no mistakes in the document.
If you’re unsure about any of the matters raised here, then please do call - 01234 713021 - or drop me an email at tim@adeptassetsolutions.co.uk. I’d welcome the chance to help.
Tagged as: Co-habitation
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