Cohabitation: How to protect your assets
However, this shared financial responsibility can cause issues should a relationship break down.
Should a couple contribute equally to the deposit and are named, and therefore liable, on the mortgage, then the risk is minimal. If they then separate, the equity in the property will be divided equally between the two. On the other hand, and arguably more realistically, should one person contribute more towards the deposit or the running of the home, issues are likely to occur after separation.
The person who contributed most may be under the impression that they will receive more in the settlement, while their partner might believe that it is a joint venture. As well as this, circumstances are unlikely to stay the same throughout the cohabitation, whether it be due to job losses or inheritance. Maintaining, or even starting with, an equal system is a rarity.
Properties in a single name
When the property is in one person’s name, once their partner begins to contribute towards the mortgage and renovations, the unnamed individual will gain a beneficial interest in the property. The level of interest does vary depending on the extent of the contributions, but the property’s equity is no longer solely the named person’s.
Lack of a single regime
Unlike for married couples, separation legislation does not exist in a single form for cohabiting couples. It combines various elements from Schedule 1 of The Children Act 1989 – if the couple have children to consider – and the Trusts of Land and Appointment of Trustees Act 1996. This makes the process far more complex and leaves dangerous room for interpretation.
‘Living together’ agreements
All couples that are planning to move in together should create a living together agreement, as it can be vital to avoiding unwanted conflict. This consists of a contract between the couple, which neatly sets out what are joint assets and what are separate. A discussion must then be had over what would happen with the joint assets should they break up. Once everything is agreed, the contract must be signed by both parties. This document should then be updated as circumstances change to ensure it matches the current situation.
Should a couple separate, a conversation must be had before the home is sold about how the money should be split. This applies whether the home is in a joint name or one name.
Arguments can arise over the beneficial interest in the house of each person, as legal ownership differs from beneficial ownership. This is where living together agreements can be used to solve the dispute in a straightforward and less traumatic way.
It’s clear that cohabiting is now a normal and common occurrence, so it is essential that people know the best way to protect their financial interests. Gaining professional advice from experts such as our family team is a sensible move for anyone considering entering a cohabitation scenario who may be unsure about how to safeguard their assets.