Buying a property with your partner? Should you enter into a cohabitation agreement?
Firstly, what is a cohabitation agreement? Cohabitation agreements record the intentions of couples or other parties who agree to live together in relation to property and any other assets and govern what should happen to the property or assets in the event of a relationship breakdown.
Cohabitation agreements can cover a wide range of agreements between cohabiting parties and they often deal with the important issues of:
- who is to pay the mortgage and other property and/or living expenses and in what proportions;
- In the event that one party wishes to sell the property, the mechanics for that sale.
- the shares held in the property and how the equity, on sale, is to be divided in accordance with the parties’ respective shares
- what happens if one co-owner wants to sell the property and the other does not;
- the arrangements for one party to buy the other’s share in the property and how the property will be valued for that purpose;
- ongoing financial support between cohabitees; and
- the living arrangements and financial provision to be made for any children.
Why are cohabitation agreements so important?
The number of couples choosing to cohabit has risen considerably in recent decades, from around 1.5 million in 1996 to around 3.5 million in 2020. Many people wrongly believe that couples living together effectively as husband as wife will have access to the same legal protection regarding finances and property as married couples upon separation. This concept of “common law marriage” is a myth which 46% of people still believe in.
In addition, rising house prices mean that those wishing to purchase property are choosing to pool their financial resources together. These buyers are typically saving for longer than previous generations and many receive funding from parents. It is becoming increasingly important to ensure that interests in co-owned property are protected.
Unmarried couples have no automatic rights to ownership of each other’s property or assets on relationship breakdown and cannot rely on matrimonial law to deal with such disputes. Whilst there is recourse under the Trusts of Land and Appointment of Trustees Act 1996 (known widely as ‘TOLATA’), the law is much less flexible than for married couples and there are fewer remedies available. Litigation under TOLATA can be costly, take a long time to conclude and have uncertain outcomes for cohabiting parties.
Is a cohabitation agreement legally binding?
A cohabitation agreement will be legally binding provided it is drafted and executed correctly. As your interests in relation to the agreement will be different, each party should seek independent legal advice.
Declaration of Trust
Another consideration for parties looking to purchase a home together is how the property should be held. Parties can elect to own a property as joint tenants (whereby upon the death of the other party the deceased’s interest will automatically pass to the surviving party) or as tenants in common (whereby upon the death of the other party, the deceased’s interest will pass in accordance with the terms of their Will and does not automatically pass to the surviving co-owner).
Where the parties are making unequal financial contributions to the purchase, they may wish to formally document that the property will be owned as tenants in common in unequal shares, reflective of the initial contributions they each make to ensure they receive an appropriate share at the point of sale or upon death.
At the time of purchasing a property, the parties will be asked to declare their intentions regarding ownership, and it is recommended that a Declaration of Trust is made at that point so there is no misunderstanding as to each party’s interests in the property and what should happen to their respective shares on sale or death.
The Declaration of Trust should deal with:
- the percentage of the property you will each own upon sale or death
- how much you will each contribute to the monthly mortgage payments and other property related outgoings
- what will happen if either party decides to sell their share.
If you sell the property, or if you separate, the Declaration of Trust will be looked at, to determine your entitlement to the sale proceeds from the property. By making an express declaration at the time of purchase, it should avoid any dispute regarding the property unless either party seeks to assert that there was a change in intentions after purchase whereby specialist advice would be required to determine if that would succeed.
Understandably, cohabiting couples often find it difficult to talk to their partners about cohabitation agreements However, given the distinct lack of legal protection for cohabiting couples, it may be worth setting the awkwardness aside and starting the conversation with your partner. The certainty offered by a cohabitation agreement may save many more awkward conversations in the long term and could ensure you avoid lengthy and costly court proceedings in the event your relationship breaks down.
At IBB Law, our family team specialise in the drafting of cohabitation agreements and will be able to advise you as to the most appropriate way to protect your position going forward.
 House of Commons Library Briefing Paper “Common law marriage” and cohabitation”, “Common law marriage” and cohabitation (parliament.uk)
 NatCen, https://natcen.ac.uk/news-media/press-releases/2019/january/almost-half-of-us-mistakenly-believe-that-common-law-marriage-exists/
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