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  • Cohabitation - The myths demystified
News 3
7
Dec
Cohabitation - The myths demystified
News

Contrary to popular belief there is no such concept as a “Common Law Spouse” and cohabiting couples do not currently enjoy the same rights as their married counterparts or those who have entered into a civil partnership irrespective of the length of time they have lived together. This can cause difficulties both on separation and on the death of one cohabitee.

Separation

The Courts do not have power to make property adjustment orders based on a fair division of the assets upon the separation of a cohabiting couple and the division of assets will be based solely on Property Law principles. Generally, a cohabitee who is living in a property owned solely by their partner will have no rights over that property unless they can show that they have contributed to the purchase price of the property either by way of the original deposit, by making repayments in respect of a capital repayment mortgage or by paying for improvements to the property that have increased its value. A property that is owned jointly by the parties and held as joint tenants, will usually be held to be owned in equal shares by the parties irrespective of any unequal contributions to its purchase price. The shares in a property that is owned jointly as tenants in common are often open for debate and, in the absence of an agreement between the parties, the intervention of the Court may be required to settle any dispute.

In order to avoid such difficulties it is wise to enter into a Declaration of Trust upon the purchase of a property which sets out the respective shares of each party. The terms of a properly drafted and executed Declaration of Trust will be binding on both parties and on the Court in the event of the separation of the parties.

Savings held in the sole name of one party will belong entirely to that party and the other party will have no rights over those assets. Similarly one cohabitee will have no rights on separation over the pension of the other and a cohabitee who gives up work to look after the parties’ children may be severely disadvantaged as a result.

Unlike married couples or those in a civil partnership, cohabitants are not entitled to claim ongoing maintenance for themselves from their partner regardless of how long they have lived together. Maintenance for children can, however, be claimed from the non-resident parent (ie. the parent with whom the children do not live). If this cannot be agreed between the parties then an application can be made to the Child Maintenance Service.

A claim can be made under Schedule One of the Children Act 1989 for various financial orders to benefit a child of both parties during their minority in a case where the parents are not married.

Liabilities in one party’s name will remain the responsibility of that person. Both parties will be liable on a joint and several basis for any liabilities in the joint names of them both.

It is possible for cohabiting couples to enter into a Cohabitation Agreement which will set out how they wish their assets to be divided if they do separate in the future. The terms of a Cohabitation Agreement can be wider than those of a Declaration of Trust. Although, Cohabitation Agreements are not binding on the Courts, they are persuasive in that they show what the parties agreed at the outset of their relationship.

Death

It is very important that cohabiting couples make Wills as cohabitees are not included in the list of those who can benefit under the Intestacy Rules. The Intestacy Rules govern the devolution of a deceased’s estate in the absence of a Will. Therefore, if one cohabitee dies without leaving a Will, their partner will not benefit from their estate. The survivor’s only option would then be to make a claim under the Inheritance (Provision for Family & Dependants) Act 1975.

A surviving cohabitee is not necessarily entitled to the pension of their deceased partner. Although, a landmark Supreme Court ruling earlier this year is likely to have bettered the situation of a surviving cohabitee, for the sake of clarity it is advisable for the pension owner to make a nomination in favour of their partner prior to death.

Tax

Unlike married couples who are divorcing, the transfer of a property to one cohabitee following separation will be subject to stamp duty land tax.

On death the value of the deceased’s estate passing to their surviving cohabitant will not qualify for spouse exemption and will, therefore, be fully taxable for inheritance tax purposes. Likewise, the nil rate band which is the inheritance tax free amount available on death (currently £325,000) cannot be transferred between cohabitees and any unused nil rate band of the first cohabitee to die will not be available to reduce the inheritance tax liability on the death of the second cohabitee. This also applies to the Residence Nil Rate Band.

The law relating to cohabiting couples is complex. In order to avoid difficulties on either separation or the death of one cohabitee, it is very important to seek legal guidance at the outset of a relationship. For further advice on this complex area, contact a member of our family law team who will be happy to help.

Please read Reliance on information posted in our Terms of Website Use - see Legal section - before relying on this commentary.

Before relying on this commentary please read the Reliance on information posted section in our Terms of Website Use in our Legal section. Please note that specialist advice should be taken in relation to any specific queries and the information above is provided for general information purposes only.

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