The next step in most people’s relationship is to move in together. Maybe you will rent or perhaps buy a place, either in one person’s name or both names. Living together as a couple is called cohabitation. It sounds rather formal but in fact cohabiting couples exist in a gap in the law. If the relationship breaks down there is not one set of clear rules about how their financial assets should be divided. This is unlike marriage or a civil partnership. It can lead to both the financially stronger and weaker party being exposed.
The purpose of a cohabitation agreement is to be clear about what your joint financial intentions are. It means that couples can move in together with open eyes and act accordingly. They are particularly useful when buying a property or living in a property owned by one party. There are lots of cases where couples did not have a cohabitation agreement and ended up in court arguing over property. It is far better to have these discussions before moving in together.
A cohabitation agreement can be used to:
- Clarify the ownership and use of a property. For example, if it is owned by one person it needs to clear that the other person is not developing any right to the property.
- How the outgoings will be paid during the relationship.
- Confirm the ownership of personal assets, particularly those used by both parties, for example a car or joint bank account.
- The practical arrangements at the end of the relationship. For example, if one person does not own the property will they be expected to leave immediately?
- A cohabitation agreement can be very useful for couples with children, even though the financial claims for the benefit of children cannot be made binding.
I set out below some scenarios and explain how a cohabitation agreement could help.
1. Meera and Michael have been together for 5 years and now Michael is moving into Meera’s property. He is going to pay Meera rent and a contribution to the outgoings, but she will continue to pay the mortgage in her sole name. Meera runs a business from her home.
The cohabitation agreement should make it clear that although Michael is paying rent and outgoings he is not developing any interest in Meera’s property or her business. At the end of the relationship Michael will not be entitled to make a claim against the property or the business.
2. Vivienne and Frank are buying a property together. Vivienne is putting down 60% of the deposit and Frank is putting down 40% of the deposit. They intend to buy it in joint names but Vivienne wants to protect her 60% contribution.
Vivienne and Frank should take advice from their conveyancing lawyer about how to hold the property. They need to formally reflect the fact that Vivienne has a 60% interest in the net equity. This can be done by holding the property as Tenants in Common and having a Declaration of Trust. A cohabitation agreement can be used to confirm the position and to set out how the outgoings on the property will be paid.