With more couples opting not to get married, and cohabitation the norm before marriage for those who do tie the knot, the number of unmarried couples who live together has been on the rise for some time. Moving in together is of course an exciting time in any relationship but, before picking out furniture, it is important to understand the financial impact of cohabiting.
Where a couple is moving into rented accommodation together the potential financial impact of cohabiting is relatively limited. If both parties are named on the tenancy agreement and the utility bills they are likely to be jointly and severally liable for any amounts owing. Thought should be given to whose names these bills should be put into. But beyond this, unless the parties have children together, the financial impact of cohabiting in the event of separation is likely to be relatively limited. Unlike with married couples, cohabitees have no claims for maintenance, property, lump sums or pension sharing orders. There is no such thing as a common law spouse.
The situation is potentially different if the parties have lived in property which they own.
Properties in joint names of the cohabitees
When property is purchased jointly it is either done so as joint tenants or tenants in common. Where it is purchased as joint tenants, regardless of contributions to the purchase price, bills or the mortgage, each party is entitled to half of the net equity in the event of the breakdown of the relationship. There are limited exceptions to this. Either can also normally force a sale of the property.
When a property is purchased as tenants in common, the purchasers are able to set out exactly how they intend to own the property, which can be in line with their contributions to the purchase price, but it doesn’t have to be. There is a large degree of flexibility as to how the respective interests are expressed. In the event of the breakdown of the relationship the net equity is normally be split between the parties in accordance with their initial agreement, although in limited circumstances this can be challenged.
Sometimes couples subsequently agree to change the original agreement. This should be recorded formally. Litigation is likely to follow in the event of a separation if it is not.
Property owned solely by one of the cohabitees
If one party moves into a property which the other owns, or a property is purchased during the course of their relationship which is registered in one party’s sole name, then that property belongs to the registered owner absolutely unless the other is able to establish a beneficial interest.
Establishing a beneficial interest usually involves the other party showing that it was agreed that they would have an interest in the property. Generally they are able to establish this if they can demonstrate that it was agreed that they were to have an interest, they contributed to the purchase price, they carried out, or paid for, improvements to the property or they paid the mortgage.
It is therefore sensible that, at the outset of the cohabitation, or upon one party purchasing a property for both of them to live in, that a cohabitation agreement is entered into. This sets out exactly what the parties’ intentions are and avoids complicated and expensive litigation at a later date.
A conveyancer should discuss the implications of purchasing property as joint tenants or tenants in common with the couple. However, where the property is purchased in one party’s name only this conversation is unlikely to take place. Given the significant financial impact of cohabitation, if either party has any concerns, specialist advice should be taken in order to avoid difficulties later down the line.