As seen on Family Law Week – Sarah Speed and Alexandra Hawkes share considerations for all the current or potential future cohabitees out there.

Moving in with your partner is an exciting milestone, but it’s important to understand the legal differences between cohabitation and marriage or civil partnership. Getting married or entering into a civil partnership is a legal process. Ending a marriage or a civil partnership is similarly a legal process and one which generates financial claims.

It is a common misconception that cohabitees have the same financial claims against each other on separation as a couple who has had their relationship legally registered. To be clear, there is no such thing as “common law marriage” in this jurisdiction.

If you move in with your partner without getting married or entering a civil partnership:

• You won’t have any legal claims to their income or pensions if your relationship ends. 
• Only in some circumstances will you have a claim against property, or other assets held by them in their sole name and any such claim is likely to be governed by civil and not family law which is less discretionary.

Cohabitation Agreements: A Practical Solution

Entering into a Cohabitation Agreement at the outset of your cohabiting relationship can avoid disputes later down the line. Such an agreement can detail each partner’s financial responsibilities during the relationship and expressly state the extent of each parties’ financial interests in, for example, their family home or other assets. This can lessen the risk of a future dispute as to whether the owner of any particular property intended to bestow on the other a financial interest in that property. 

The financially stronger cohabitee may want to consider how to protect their assets from their partner seeking to establish a financial interest in them on separation.

For the financially weaker partner, a Cohabitation Agreement could act as a safety net, ensuring their contributions, such as paying household bills or helping with the mortgage, or non-financial, such as supporting the household, are recognised and will provide them with a recognisable financial interest on separation.

Entering into a Cohabitation Agreement which expressly confirms the parties’ intentions as to ownership of assets held in the sole name of one or other of the parties will therefore provide both parties with peace of mind.

Buying a Home Together: Joint Tenancy vs Tenancy in Common

If you and your new partner are thinking about purchasing a property together, how you choose to own the property can have significant legal and financial implications. In the UK, there are two main ways to own property jointly: either as joint tenants or as tenants in common.

• Joint Tenants: Both partners own the property equally. If one of you passes away, the other automatically inherits the entire property, regardless of what your Will says.

• Tenants in Common: You can own the property in equal or unequal shares. This option allows you to leave your share of the property to someone else in your Will, such as children from a previous relationship.

Choosing the right ownership structure for you will depend on your personal circumstances and long-term goals. A young couple entering into their first cohabiting relationship and who have no children and no pre-acquired wealth may prefer to buy as joint tenants. An older couple who has built up separate assets over their lifetimes may prefer to be tenants in common to preserve their ability to leave assets to children from previous relationships and / or to purchase their home in unequal shares, as well as entering into a Cohabitation Agreement and a declaration of trust detailing their financial interests.

Protecting Your Wealth for your Children

If you have children from a previous relationship, and wish to benefit them financially on your death, it will be important to take advice from a specialist before moving in with a new partner or jointly buying a property with them.

Without clear legal documents in place making your intentions clear, your assets may not pass to your intended beneficiaries on your death. For example, your cohabitee might have grounds to claim against your estate as a “dependent”, or automatically inherit your share of a jointly owned property that you bought as joint tenants.

Capital Gains Tax (CGT)

Whenever you buy or sell property or other assets, you should consider taking tax advice. If you intentionally acquire a financial interest or inadvertently give one away during a cohabiting relationship, a tax liability may arise. Cohabitees do not benefit from the same tax exemptions as married couples. This means selling or transferring property during or after the relationship could trigger tax liabilities. Seeking professional advice early can help you plan effectively to minimise CGT which could otherwise significantly affect the financial benefit you receive on ending your relationship.

Next Steps: Planning

The legal framework for settling financial claims at the end of a cohabiting relationship is complex. A Cohabitation Agreement can safeguard your future and reduce the risk of a future dispute by providing you and your partner with clarity as to how to share your assets in the eventuality of your relationship breaking down.

At Herrington Carmichael, our Family team has extensive experience in helping people understand the legal implications of cohabitation. If any of the issues raised in this article resonate with you, please contact us and speak to a member of our Family Team.