Just thirty years ago, living together was still publicly frowned up by the majority and practised by only a minority.  Today, 25 per cent of heterosexual couples aged between 16 and 59¹ cohabit  with no formal marriage agreement in place.   While many may be vaguely aware that their rights in the case of a split or death are not the same as those of a married couple, how many have taken steps to protect their financial interests?  And with the government mooting new legislation which will radically shake up the way cohabitees are treated, even those who think they’ve taken the necessary precautions could be left vulnerable.  So what are the financial implications of cohabitation, and what steps should individuals take to ensure they don’t lose out if the relationship hits the rocks?

¹  www.statistics.gov.uk 

Common knowledge about ‘common law’

First off, there is no such legally defined or recognised status as ‘common law spouse’.  The term dates back to a time when what constituted a marriage was uncertain, and legal recognition of common law marriage ceased when the Marriage Act came into force in 1753. Today, the correct term is ‘cohabitation’. Under the rules of cohabitation, there is no obligation on either party to support the other financially (contrary to marriage). If the relationship fails, a partner who has contributed significantly to the household over many years could be left empty-handed.  There are other significant implications which couples already cohabiting, or considering the move, should take into account.  These include:

Caring for the kids

Have children within a cohabitation relationship, and all rights, duties and obligations will fall automatically to the mother unless there is a formal agreement to the contrary.  Women can be left financially crippled if a cohabitation relationship fails and she is left with the stark choice of working to pay for the children and their care, or staying at home and relying on benefits.

Who gets the house?

The way any property shared by a cohabiting couple is divided in the event of a split depends very much on how the property was purchased.  There are two types of ownership: a) joint tenants, and b) tenants in common.  If the couple are joint owners, they are not seen to have a separate share each and if one of the partners should die, a certificate of death will usually suffice to prove title of ownership. Indeed, even a will made by the deceased party to the contrary would be ineffective, and the property would pass automatically to the joint tenant.

Tenants in common, on the other hand, hold a pre-determined share of the property, which is clearly preferable if either party has paid a greater proportion of the purchase price and wishes to retain that higher interest on sale.  If either partner dies, their share passes to whoever they have specified in their will, though a trustee must be appointed to oversee the sale of land or property.

Where there’s a will

From the above, it’s clear that anyone co-buying a house as a tenant in common should make a will, and this is highly advisable for all couples living together.  Without a will, the surviving partner in the case of either passing away may not inherit anything, regardless of their financial contribution along the way.

Preparing to cohabit

So cohabiting, it seems, is fraught with potential downsides compared with marriage. A heterosexual couple could live together for 50 years or more and the surviving party still be entitled to nothing on the death of their beloved partner. With the introduction of civil partnerships for same sex couples late last year, this leaves people who believe they are a ‘common law’ spouse with fewer rights than in almost any other domestic arrangement. So what can couples for whom marriage holds no appeal do to protect themselves financially if they still wish to live in the same house as their partner?

Cohabitation agreement

A cohabitation agreement is document which sets out how the relationship between two heterosexuals who decide to live under one roof will operate.

The precise content of a cohabitation agreement is extremely flexible and can be determined largely by the couple themselves. However, there are some useful pointers regarding the sorts of things that should be included:

Bank and savings accounts: will there be joint or separate accounts and what will be funded from each?  This could also cover how the cost of daily living expenses such a food and utility bills will be met;

Arrangements for children: this may set out responsibilities for day-to-day care during the relationship, and arrangements for maintenance and contact in the case of a split;

Housework: who will be responsible for what household tasks and how often should they do them;

Cars: will vehicles be funded separately or jointly and who keeps what if the relationships crashes?

Investments and pensions: how will these be funded?  Will the couple hold joint or individual investments and how will they be divided if the couple separates?

Dealing with debts: if either party is in debt as they enter into the partnership, how will these debts be dealt with?

Gifts: these usually remain the property of the recipient but may be seen as a loan, especially in the case of cash;

Handling disputes: will disagreements be dealt with by an agreed named counsellor or conciliatory body?

Wills and inheritance: what provision will be made for the surviving partner on the death of either party? 

Independent financial and legal advice are strongly recommended before drawing up a cohabitation agreement.  A Deed of Trust should also be drawn up to run alongside the agreement, and this will cover specifically mortgage payments and how to calculate respective shares of any property.

A financial review would highlight areas of need and recommend adequate protection for eventualities such as death and illness, as well as ensure financial security for both parties.

Opting out

While all this may equip couples planning to live together to sort out their affairs more amicably and fairly in the case of a split, the legislation governing cohabitation still lags far behind the protection offered to those who tie the knot.  This has been the subject of extensive debate and the government is now considering new plans to bring the law for heterosexuals living together into line with that covering married couples – and even same sex couples in a civil partnership.

In May last year, the Law Commission published a consultation paper detailing proposals for fundamental change in how cohabiting couples are legally recognised. The paper is currently under review and the Commission is due to make its final recommendations in August 2007. If its proposals come into force, they would mean a radical shake-up for heterosexual couples, with some perhaps surprising implications.  The Law Commission wants couples who enter into a cohabiting relationship to automatically ‘opt in’ to a contractual agreement.  The avoid this, they would have to expressly ‘opt out’ – not something couples embarking on a shared life within a loving relationship may be comfortable broaching. What they may not realise, however, is that opting in could leave them with financial obligations they had not considered and would not welcome.  Under the proposals, anyone cohabiting with a partner who has children from a previous relationship could find themselves forced to pay maintenance for offspring they are not related to should the relationship break down! The Law Commission’s intention may be to put cohabiting couples on the same footing as married couples, but is this perhaps a step too far?

Conclusion

Cohabiting couples are currently left out of legislation since they are not fully recognised as a legal entity in the same way as married couples and those in civil partnerships.  Yet proposed new legislation could leave them with legal and financial obligations they are not prepared to accept. Cohabitation agreements allow couples to ensure expectations regarding their living arrangements are clearly communicated from the outset, and do offer some measure of protection.  However the message seems clear: unromantic as it may seem, couples considering sharing a home without exchanging wedding vows should take sound independent legal and financial advice before they commit.