More than three-quarters of family lawyers have seen an increase in couples seeking advice on setting up a cohabitation agreement in the last 12 months, new research from Direct Line Life Insurance has revealed.
In addition, almost one in ten (nine percent) family lawyers say this has been a growing trend over the last three years. For unmarried couples a cohabitation agreement provides valuable legal protection, as it details each partner’s entitlements and how assets will be divided, such as; a share of a house or joint bank accounts, if they split.
Despite increased interest in these protections, there remains a huge ‘protection-gap’ as two million cohabiting couples in the UK do not have a cohabitation agreement in place. These people have very limited rights if they split with their partner and there is unlikely to be any legal obligation to pool or divide assets.
The majority of family lawyers (68 percent) believe a cohabitation agreement should be taken out by a couple immediately upon moving in together. These respondents said it is imperative agreements are drawn up at this point to ensure parties know their liabilities if they split and to avoid contentious disputes over mortgage and rent payments or other financial commitments.
However, other family lawyers argued that the most important time to take out a cohabitation agreement is after having children (15 percent), or after taking out joint financial products (14 percent).
Just like pre-nuptial and post-nuptial agreements, there are legal challenges being mounted by people who having broken up with a partner that feel the terms of their cohabitation agreement are now not fair, or it doesn’t adequately provide for them financially. Family law specialists reported there has been a 19 percent increase in legal challenges over the last 12 months, with people disputing a settlement they had previously signed up to.
A cohabitation agreement is vital if an unmarried person wishes to protect their investment in a property, where they committed a significantly larger sum than their partner, when purchasing a property as a couple. The agreement should clearly outline how the monies would be divided if the couple split.
The most popular clauses in cohabitation agreements currently include agreements on savings (89 percent), bank accounts (83 percent), mortgage or rental payments (72 percent), investments (70 percent) and custody/maintenance agreements for children (67 percent).
The areas family lawyers crucially believe couples often fail to include in a cohabitation agreement are next of kin rights (36 percent), current or potential for family inheritance (29 percent), maintenance agreements for children (28 percent) and household bills (24 percent).
Highlighting the increasingly contentious issue of ownership and access to pets following a breakup, over a quarter (28 percent) of lawyers believe this is an area too often excluded from a cohabitation agreement.
Chloe Couper, business manager at Direct Line Life Insurance, commented: “It is important unmarried couples realise they have very little legal protection if they move in together and take on joint financial responsibilities, without a cohabitation agreement in place detailing how assets and liabilities like bills are to be dealt with if they split. A cohabitation agreement can prevent lengthy and expensive court proceedings and additional emotional stress after a break-up.
Svenja Keller, head of wealth planning at Killik & Co, said: “This research highlights a welcome trend towards couples taking out cohabitation agreements, an uptick which we have also seen. Many couples view marriage as a more traditional thing to do, but with this tradition comes a lot more protection than just cohabiting. It is often the case that couples can underestimate the financial commitment they make when they purchase a house or even just renting together.
“When cohabiting with a partner, it is natural to not want to think through worst case scenarios, but it is essential this has been thought through properly so informed decisions can be made on how to protect themselves financially or choose to take the risk. For a lot of people, if they knew the consequences and were fully informed, they would elect to protect themselves. Many people wrongly assume that living together provides some form of protection. An example of this we often see is when one party passes away and there is no will in place.”
The importance of cohabitation agreements is underlined by additional research, which reveals 1.7 million (26 percent) people in an unmarried cohabiting couple have no idea how assets would be divided if they split.
In the case of a house purchase people’s lack of the knowledge of the law is worrying, a quarter (25 percent) of unmarried Brits have no idea how a property would be divided if an unmarried couple split having contributed different amounts to a deposit or mortgage.
Almost a third (30 percent) think the assets would be divided on the basis of the financial contribution of both parties if the relationship broke down, while five per cent believe it would be split on a ratio of the couple’s income.
Legal specialists state in event of an unmarried couple breaking up, a house with one partner’s sole name on the deed would belong to them alone unless it could be proven otherwise, with any joint assets usually split 50/50.
If someone owns a property in their name only they can evict their partner from the home without getting a court order, they don’t need permission to take a loan out against the property or sell it without the other person’s agreement.
An ex-partner may be able to continue living in a property, or secure a share of its value when sold, if they can prove to a court they have paid towards home improvements or the mortgage. In England and Wales even contributing to a mortgage does not automatically guarantee a share of an ex-partner’s property. In Scotland to continue living in a family home they can apply to the court for ‘occupancy rights’ but there is no guarantee it will be granted.