How couples can protect their financial interests when cohabiting

People who simply live together cannot assume they have the same rights to each other's assets as spouses or civil partners. Michelle McGagh sees how they can protect their financial interests

Contrary to popular belief, it isn't the case that being a common-law spouse provides built-in protection for cohabiting couples – but there are voluntary arrangements that can provide equivalent financial rights.

Recent changes to the intestacy laws, which determine who can inherit an estate if someone dies without a will, make it easier to claim more of the property of a spouse or civil partner. However, despite recommendations from the Law Commission, unmarried, cohabiting couples were not given any more rights to a partner's estate in the event of death.

Resolution, an organisation of lawyers that promotes mediation to solve family problems, is campaigning for increased legal protection for couples who live together. According to the Office for National Statistics, the number of cohabiting couples has almost doubled since 1996 from 1.5 million to 2.9 million in 2012. Stephen Kirwan, managing director at the law firm Nowell Mellor and the head of Resolution's work on reforming cohabitation law, says live-in partners have "almost no rights" – although many mistakenly believe that couples become "common-law spouses" after either two years or sometimes six years.

In order to protect their own interests and ensure a partner is provided for if one dies – or if the relationship breaks up – cohabiting couples should assess each area of their finances, property and childcare arrangements to see what provisions they need to put in place.

Couples can use cohabitation agreements or declaration-of-trust arrangements, which are both legally binding, to determine who owns what assets and who is entitled to what.

The contracts differ slightly. A declaration of trust, sometimes known as a deed of trust, sets out exactly what assets each partner is bringing to the relationship and what happens to the assets should they have to be divided. This contract can set out who pays certain bills and any "extra value" that one partner may have contributed, such as paying for home improvement.

A cohabitation or "living together" agreement typically covers more day-to-day matters such as the way the household is run or other circumstances specific to the relationship.

Mr Kirwan says: "A declaration of trust or cohabitation agreement establishes what your property is and it is binding on execution: it cannot be changed without the consent of both parties.

"A declaration of trust is usually in relation to particular property and a cohabitation agreement can include extra details about paying off debts, joint accounts and financial arrangements around children, such as who pays for school fees."

Property

A home is usually the largest asset a person or couple owns, and for married couples or those in a civil partnership, each person has equal rights to the property no matter who bought it, who pays the mortgage or who maintains it.

For cohabiting couples it is not that straightforward. If the property is owned by one of the couple, it has to be decided whether their partner has an interest in the property – because they contribute to the mortgage, or because they pay for building work, for example. However, if these contributions are not set out in a declaration-of-trust agreement then the partner who does not own the property could find they have no rights to a share of the home if the relationship breaks down.

Similarly, cohabitors buying a home together should make sure they use the right legal structure so the property passes automatically to the surviving partner in the event of death.

Property-purchase contracts can be drawn up as either "joint tenancy" or "tenants in common". Under joint tenancy, both partners own the whole property, meaning that if one person dies, the survivor carries on owning it.

Tenants in common means each partner owns a specific share. Under this arrangement, the share a person has in a property can be left to whoever they choose.

Mr Kirwan warns that cohabitors purchasing a property under tenants-in-common rules should also draw up a will to ensure their share of the property is passed on to the person they wish. "If you are buying [a property] together, it needs to be in joint tenancy if you are making an equal contribution because then the law will see it as equal [ownership]," he says.

Pensions

The introduction of auto-enrolment means more workers are paying into a workplace pension scheme, but unmarried couples do not have an automatic right to the pot of money if their other half dies before or after retirement.

Mr Kirwan says most pension schemes "deal with married couples and not cohabitors". If a person dies before retiring, a spouse or civil partner will be entitled to "death-in-service benefits" from the pension pot, and if the spouse has already retired then a "widow's pension" will be paid to the survivor.

An employee has to nominate who they want to benefit from their pension should they die, but Mr Kirwan says it would depend on the scheme as to whether it would allow non-married couples to nominate a partner.

Savings and investments

Unless savings and investments are included in a cohabitation agreement and a will, a couple will have no automatic right to this wealth if they split up or their partner dies.

If the savings and investments are owned jointly then each cohabitor will only be entitled to take back what they contributed at the end of a relationship, and the courts will want proof of just how much each party paid in.

As with property, if one of the cohabitors dies and has not left a will, their savings and investments will go to their next of kin.

Joint accounts

Michael Gregory, family law specialist at Clarion, warns that an account used jointly by a couple needs to be included in a cohabitation agreement and will to ensure both partners have equal access to the money in the account. This is particularly important in the case of death, as if the account is not put into joint names then "the money will be frozen until the probate is dealt with and then the funds are released", he says.

If the accounts are not held in joint names, it may mean bills are not paid and a surviving partner could be left without any money.

Children

The number of children living in cohabiting-couple families has doubled between 1996 and 2012, from 900,000 to 1.8 million. Mr Gregory says that while cohabitors can claim child maintenance from a former partner, a cohabitation agreement can be used to make other, more extensive financial provision for children and even children from former partners who are not biologically related to both cohabitors but are part of the family. He recommends updating wills to set out who a child should live with if one of the partners dies.

He adds that child arrangement and special guardianship orders can provide confirmation of who a child lives with should a parent die.

Change in the law

Resolution, of which both Mr Kirwan and Mr Gregory are part, is continuing to lobby for changes to the law around cohabitation. However, Mr Gregory says the "political agenda" pushing marriage, with the introduction of tax breaks for married couples and same-sex marriages, means the Government is less keen to make changes to cohabitation laws – although a second reading of a cohabitee rights Bill is expected this year.

Liberal Democrat peer Lord Marks introduced the Bill to give cohabitors similar but not equal rights to married couples last year and the first reading was in October 2013.

"There are clearly more people living together and choosing not to get married or enter into a civil partnership," says Mr Gregory. "We live in a very different society and there needs to be a change. Unfortunately that has not happened yet.

"We have a set of archaic laws that deal with equity and trust and we do not have anything that protects people living together.

"If you have been living together for a period of time," he adds, "then there should be some responsibility and protection."

Independent Partners; request a free guide on NISAs from Hargreaves Lansdown

PROMOTED VIDEO
News
The 67P/CG comet as seen from the Philae lander
scienceThe most important scientific breakthroughs of 2014
Arts and Entertainment
Ian McKellen as Gandalf in The Hobbit: The Battle Of The Five Armies
film
Sport
football
Arts and Entertainment
Sarah Koenig, creator of popular podcast Serial, which is to be broadcast by the BBC
tvReview: The secret to the programme's success is that it allows its audience to play detective
News
Ruby Wax has previously written about her mental health problems in her book Sane New World
people
Finacial products from our partners
Property search
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

ES Rentals

    iJobs Job Widget
    iJobs Money & Business

    Ashdown Group: Marketing Services Manager - (communications, testing, DM)

    £32000 - £35000 per annum + benefits: Ashdown Group: Marketing Services Manage...

    Guru Careers: Finance Account Manager

    £Neg. (DOE) + Excellent Benefits: Guru Careers: A Finance Account Manager with...

    Ashdown Group: Java Developer - Hertfordshire - £47,000 + bonus + benefits

    £40000 - £470000 per annum + bonus: Ashdown Group: Java Developer / J2EE Devel...

    Ashdown Group: Direct Marketing Manager - B2C, Financial Services - Slough

    £45000 - £55000 per annum + Benefits: Ashdown Group: An exciting opportunity h...

    Day In a Page

    Homeless Veterans appeal: 'You look for someone who's an inspiration and try to be like them'

    Homeless Veterans appeal

    In 2010, Sgt Gary Jamieson stepped on an IED in Afghanistan and lost his legs and an arm. He reveals what, and who, helped him to make a remarkable recovery
    Could cannabis oil reverse the effects of cancer?

    Could cannabis oil reverse effects of cancer?

    As a film following six patients receiving the controversial treatment is released, Kate Hilpern uncovers a very slippery issue
    The Interview movie review: You can't see Seth Rogen and James Franco's Kim Jong Un assassination film, but you can read about it here

    The Interview movie review

    You can't see Seth Rogen and James Franco's Kim Jong Un assassination film, but you can read about it here
    Serial mania has propelled podcasts into the cultural mainstream

    How podcasts became mainstream

    People have consumed gripping armchair investigation Serial with a relish typically reserved for box-set binges
    Jesus Christ has become an unlikely pin-up for hipster marketing companies

    Jesus Christ has become an unlikely pin-up

    Kevin Lee Light, aka "Jesus", is the newest client of creative agency Mother while rival agency Anomaly has launched Sexy Jesus, depicting the Messiah in a series of Athena-style poses
    Rosetta space mission voted most important scientific breakthrough of 2014

    A memorable year for science – if not for mice

    The most important scientific breakthroughs of 2014
    Christmas cocktails to make you merry: From eggnog to Brown Betty and Rum Bumpo

    Christmas cocktails to make you merry

    Mulled wine is an essential seasonal treat. But now drinkers are rediscovering other traditional festive tipples. Angela Clutton raises a glass to Christmas cocktails
    5 best activity trackers

    Fitness technology: 5 best activity trackers

    Up the ante in your regimen and change the habits of a lifetime with this wearable tech
    Paul Scholes column: It's a little-known fact, but I have played one of the seven dwarves

    Paul Scholes column

    It's a little-known fact, but I have played one of the seven dwarves
    Fifa's travelling circus once again steals limelight from real stars

    Fifa's travelling circus once again steals limelight from real stars

    Club World Cup kicked into the long grass by the continued farce surrounding Blatter, Garcia, Russia and Qatar
    Frank Warren column: 2014 – boxing is back and winning new fans

    Frank Warren: Boxing is back and winning new fans

    2014 proves it's now one of sport's biggest hitters again
    Jeb Bush vs Hillary Clinton: The power dynamics of the two first families

    Jeb Bush vs Hillary Clinton

    Karen Tumulty explores the power dynamics of the two first families
    Stockholm is rivalling Silicon Valley with a hotbed of technology start-ups

    Stockholm is rivalling Silicon Valley

    The Swedish capital is home to two of the most popular video games in the world, as well as thousands of technology start-ups worth hundreds of millions of pounds – and it's all happened since 2009
    Did Japanese workers really get their symbols mixed up and display Santa on a crucifix?

    Crucified Santa: Urban myth refuses to die

    The story goes that Japanese store workers created a life-size effigy of a smiling "Father Kurisumasu" attached to a facsimile of Our Lord's final instrument of torture
    Jennifer Saunders and Kate Moss join David Walliams on set for TV adaptation of The Boy in the Dress

    The Boy in the Dress: On set with the stars

    Walliams' story about a boy who goes to school in a dress will be shown this Christmas