Cohabitation: An Overview
Cohabiting partners are the fastest growing family type within the UK. The latest figures provided by the Office for National Statistics (ONS) advise cohabiting couple families in the UK have doubled in the last twenty years; from 1.5 million in 1996 to 3.3 million in 2016.
Many people have the mistaken belief that by residing with your long term partner, this entitles them to rights granted to married couples under the Matrimonial Causes Act 1973. Sadly, this is not the case and means unlike married couples, it strictly limits their rights when discussing property, finances and upon death. Currently cohabitation disputes are addressed under the Trusts of Land and Appointment of Trustees Act 1996. Whilst there is ongoing discussion within the Government proposing changes to this area of law, at present there is limited scope to assist and protect cohabitees should they seek to separate.
There are many reasons why a couple may remain unmarried. This ranges from lifestyle choice to a belief that by engaging in a ceremony; in the eyes of their religious community they are now considered to be married. In reality however there is a risk these forms of union are not legally binding and as such are treated as cohabitees in the eyes of the law.
There are a number of scenarios which client’s regularly face:-
Reside in their partner’s home but have verbally agreed it is considered the family home.
A property is held in the sole name of one of the parties and the parties proceed to live together for a number of years and have children. The parties separate and the party who is not on the title believes they have the potential to obtain part of the equity within the property.
The legal position is if you are not upon the title to the property in question, you are unable to make a claim unless you can provide evidence of either a resulting trust or a constructive trust.
A Resulting Trust arises when a person whose name may not be on the title to the property has provided part or all of the purchase price. In these circumstances they would be entitled to claim a direct proportion to the financial contribution made, unless there is evidence of any other documentation confirming as to how the parties would share the beneficial interest of the property i.e. a Declaration of Trust.
A Constructive Trust can arise where parties purchase property with the intention being that it is to be shared, albeit the property is placed into the name of one of the parties. To be able to successfully establish a beneficial interest in the property, the party not upon the title has to evidence:-
1. The property was intended to be shared
2. By relying upon this intention, the non-owner acted to their detriment i.e. they incurred risk by knowing the property is placed into the other’s name.
Co-own a property, held as beneficial joint tenants
When parties purchase a property they are required to complete a Transfer Deed (TR1). Upon this form it requests confirmation as to how the parties intend to own the property.
There are three options available:-
If the first box is picked, the parties are to hold the property as beneficial joint tenants. This means the parties have provided an express declaration of intention for the parties to own the property equally. On the death of the first party, the other shall receive their share of the property.
The parties cannot leave their share of the property in their Will, nor can it be transferred under the Intestacy Rules, because it will not form part of the deceased’s estate.
Should the parties split, the starting position is equal division meaning the equity held within the property should be split equally between the parties. This is regardless of whether one party has been the breadwinner, or whether they have solely paid for the mortgage.
Co-own a property, held as tenants in common
If the second box is picked, the parties are to hold the property as tenants in common, however specifically this means the parties are to hold equal shares of the property. If the parties do not wish to split the property equally, then they must choose option 3 and clarify as to the split of the interests within the property.
By owning the property as tenants in common, each party will own a specific share which can be left in their Will upon death, or can be assigned under the Intestacy Rules. As such, should the parties separate then there is a presumption that the equity is to be split equally.
Co-own a property, held as tenants in common with unequal shares
This is the usual option parties choose if they wish to define the shares of the parties within the property. For example if one party has provided a higher contribution of equity to the property; they may choose for the equity to be split upon sale in uneven amounts, such as 60%/40%. If the agreement is straightforward then this can be set out on the Transfer Deed. If however the parties wish to expressly confirm how the proceeds are to be split upon separation including specific amounts, then we would recommend a Declaration of Trust be obtained prior to purchasing the property.
This would include more detailed provision i.e. “A is to receive the first £30,000 upon the sale of the property. Thereafter the net proceeds to be split equally between A and B.”
The benefit of a Declaration of Trust is it allows the parties to ensure that there is clarity as to how the proceeds of sale are to be split, should the parties ever come to separate. Without this, you are at risk of being in a position whereby your partner could substantially benefit from the equity within a property without contributing towards this.
One way which client’s may resolve the issues arising above is by entering into a Cohabitation Agreement. This is a written contract between the two parties clearly setting out the terms of the cohabiting parties and what is agreed as to the split of the property should the parties separate in the future.
Sadly we are yet to have definitive legation specifically for this area, and therefore an agreement must meet the requirements of a legal contract, should a party attempt to enforce the terms of the agreement upon the other. Even so, we cannot at this time provide absolute legal certainty the agreement is enforceable by the Court.
These agreements can focus on the property, land and monetary aspects of the relationship, and would provide evidence to a Court as to an intention by the parties for the assets to be split in a specific way. This is why we would strongly recommend both parties have obtained separate and independent legal advice; to ensure this limits potential arguments further down the line that one party did not receive the necessary advice or guidance upon the document prior to signing.
We do note the information provided above are general positions only and our advice will depend on the specific circumstances of your matter.
Should you wish to receive specific advice in relation to this area, please do not hesitate to contact our Practice Manager Richard Bruce on 01925 263 273, to make an appointment to speak with one of our team.