In brief:
- The Government has proposed changing the law in relation to cohabitation
- The proposals, if implemented, would lead to greater protection for financially weaker parties in relationships who remain unmarried
- However, it has serious implications for wealth planning and protection
More couples than ever are cohabiting longer prior to marriage or are choosing to cohabit instead of getting married. The Government has proposed to change the law relating to cohabitation. Proposals are at the consultation stage, and reform is likely to take some time yet but there are considerations that cohabitees or those who may cohabit should be aware of.
Why do we need reform?
There is no concept of "common law marriage". Where a cohabiting relationship ends, parties have no automatic right to make financial claims, unlike when a marriage/civil partnership ends where the court has wide powers to make orders in respect of assets and income. This leaves cohabiting couples reliant on property and trust law and claims that are expensive and challenging to prosecute. It is also the case that if no Will is in place, a deceased's estate will automatically pass to their family, rather than their cohabitee and this is also an area where reform is proposed.
Proposed changes
At the end of their relationship, eligible cohabitees would have a statutory framework of rights and could bring a claim against their ex-partner in order to meet their financial "needs". To be eligible to bring a claim, a couple would need to:
- Each be at least 18 years old;
- Bring the claim within two years of the relationship ending;
- Have been in a committed and interdependent cohabiting relationship for a minimum of three years unless they have children together in which case no minimum qualifying period applies.
The Government has stated its intention to limit the extent of the claims that cohabitants might bring against each other so that a cohabitee would not receive as much as they would have had they been married, so there would be no "sharing" of assets. Claims would be limited to the needs of any children and the housing, capital, income and pension needs of the financially weaker partner.
Opt-out
The Government proposes that couples would be able to "opt-out" of the framework. To do so, they would need to:
- Enter into an agreement (a valid contract executed as a deed)
- Provide disclosure to the other party of material information about their financial situation;
- Receive independent legal advice.
Steps to consider now
At present, the Government is just considering proposals so it is reasonably likely that any reform will be in a different form to the current proposals.
However, given the direction of travel, we would suggest that those in, or intending to enter into a cohabiting relationship, consider entering into a cohabitation agreement and updating their will.
A cohabitation agreement sets out how a couple intends to own and contribute to any property in which they live. It can cover all of the requirements proposed by the Government to permit couples to "opt out" of the new framework, while also having effect under the current law.
Whilst the prospect of greater protection for long-term cohabitants is positive the proposed eligibility criteria is arguably potentially too broad, particularly for young, childless couples who may move in together primarily to reduce costs. Where a couple are young, a relationship of three years is less likely to leave parties in a position of financial need than a relationship of three years where the parties are older and for example where one party may have experienced a pause in their career, pursuant to decisions made in the relationship. There are potentially serious implications for parents who have or intend to pass on their wealth for example parents who contribute towards a child’s house deposit.
How Mishcon de Reya can help
Our experienced Family and Private Wealth & Tax and Private Wealth Disputes teams can assist with creating cohabitation agreements, preparing wills or wider wealth planning and strategy to avoid potentially costly and time-consuming litigation.