Why Cohabitation Agreements are Essential
When my 10 year relationship suddenly split and I found myself with three children under 7, without my name on the house deeds, no career or income, and no pension, I felt the full brunt of not having any marriage laws to protect my interests.
I was unusual in that I knew I had no legal rights and that Common Law marriage is a myth. I just never dreamt that my relationship would ever end.
I had never heard of ‘Cohabitation Agreements’ – but if my daughter chooses to settle down in the future to have children with a partner, I would not only advise her to create a Cohabitation Agreement, I would help cover the cost as the most useful Christmas present she’d ever receive.
Does that sound extreme? Does it take the ‘romance’ out of a relationship founded on love?
If as a couple you are happy to create a Will and decide on what to do if one of you dies, then surely it is statistically more likely that one of you will leave the relationship alive – so why not discuss that possibility and make plans in the same way?
ONS Statistics (published December 2012) estimate that 42% of marriages in England and Wales end in divorce. It is also estimated that:
- 34% of marriages are expected to end in divorce by the 20th wedding anniversary.
- 6% of marriages are expected to end by the 20th wedding anniversary because one of the spouses has died.
So according to those ONS statistics, a marriage is 5 times more likely to end through divorce than through death before your 20th Wedding Anniversary, and those who Cohabit will not be any more likely to stay together than their married counterparts.
Over 120,00 families with dependent children separated in 2013. About half were married couple families (1.3% of 4.7 million married families), and half were from cohabiting couples (5.3% of 1.2 million cohabiting families).
There are 7.7million families with dependent children, of which:
- 4.7million (60%) are married couple families
- 1.2million (15%) are unmarried opposite sex couple families
- 1.9million (24.5%) are lone parent families
- 8,000 (0.04%) are civil partnered couple families
- 5,000 (0.03%) are same-sex cohabiting couple families.
United Kingdom (ONS, 2013 – Relate Fact Sheet)
So at least 2.4 million UK adults are cohabiting and have children. But how many are aware of the myth of ‘common law marriage’?
Sadly, just over half the population still think that common law marriage exists in law, according to a British Social Attitudes survey. Another interesting finding from the survey is that the importance attached to marriage for parents is on the decline with only 28% of people thinking that married couples make better parents than unmarried ones.
Part of the survey concentrated specifically on attitudes to cohabitation and found that:
- 89% think that a cohabiting partner should have a right to financial provision on separation if the relationship has been a long-term one, includes children and has involved prioritising one partner’s career over another;
- 38% think that a cohabiting partner should have a right to financial provision if the relationship only lasted two years and involves no children.
One of the Survey’s authors, Professor Anne Barlow, says that it showed that:
“there is little appetite for maintaining the deep legal divisions drawn between married and unmarried cohabiting families. The Law Commission should bear this in mind in their review of current legislation.”
But the fact is that the law is not providing rights for financial provision – and the Government is not showing any sign of wanting to change that situation.
The difficulties experienced by cohabiting couples who separate were recognised by the Law Commission in its 2007 Report which recommended a new law which would give financial rights for unmarried couples with children who had been together for a suggested 2-5 years.
The current UK government of 2014 has no intention of granting these new legal rights despite the recommendations of the law reform watch-dog. Presumably this is because the issue remains politically sensitive and critics fear that this long awaited change would undermine the institution of marriage.
“The government’s decision is both disappointing and frustrating.” Is the view expressed by Mediator and Collaborative Lawyer Kim Beatson. “Marriage rates have fallen to an all time low and there is a rise in the number of people cohabiting year on year. Children born to unmarried couples who separate can be vulnerable and the need for law reform is long overdue. The government’s refusal to act is all the more illogical as cohabiting couples who separate often find themselves dependant on the state for help with housing and other living expenses.
As the law stands, arguments about whether a cohabitant has an interest in property are expensive and protracted. In the absence of direct financial contributions to the purchase price, it is very difficult to secure a remedy and the only safe way forward is for cohabitants to ensure that both names are on the title deeds to any property and that the position on contributions is documented.” Kim Beatson, Anthony Gold Solicitors
In other words, a Cohabitation Agreement – which acts like a prenup for cohabiting couples – is a sensible document to have in place.
Couples cohabiting to have children, where one partner will be compromising their ability to financially support themselves, would be wise to create a cohabitation agreement. This may not provide the same legal protection as the marriage laws or a prenup, but it at the very least lays the foundation for future discussions should the relationship dissolve in the future. A Mediator is well placed to guide a couple on how to create such an agreement, and consider all the necessary factors that should be thought about and included. That Cohabitation Agreement can then be put into a legal format, which will have a similar level of legal enforcement as a Partnership Agreement between business partners.
Because of the absence of a legal framework for cohabiting couples who split, it is all the more important that they find ways to communicate their needs to each other clearly and in a non-adversarial way, and it may be useful to engage a third party to help.
“Many couples think that they will just be spontaneous and things will just unfold and they can sort out any hitches along the way: 9 times out of 10 after a period of time this just doesn’t work. It’s far better to set out some clear boundaries, know in advance who will do what, so each person is aware of their responsibilities from the start. Having some help with this can make it fun, clear and easy to follow to avoid any chance of a dispute later.” Joy Fahey, New Beginnings Coaching
If the money situation is financially complex – pension splitting or tax implications on the sale of properties, for example – then a financial planner would need to be involved. The couple may also want to consider using Collaborative Law.
Although designed for divorcing situations, the process is founded on keeping couples away from the court and coming to an agreement through round table discussions with both parties legal advisors in the room, with the inclusion of other professionals like financial planners or parenting experts if desired. Although the costs will be higher than using Mediation, the Collaborative Process will allow a much swifter conclusion to a complex financial dispute than arguing it out in court in a divorce situation, and therefore ultimately will save the couple money and stress. So with regard to a Cohabitation Agreement where there are complex financial issues to discuss, and where legal advice is useful to have on hand, then using the Collaborative Process could be worth considering.
Create a ‘Life Plan’
My vision is that people choosing to have children together will want to create a ‘life plan’ that includes what will happen if they separate.
The focus should be on the life they want to create together – their hopes and dreams and plans for the future – but also to look at how they would keep their family strong if they chose for whatever reason to live apart. This could be caused by wanting to live in different countries, because of different values, because of mental illness in one of the couple, or any other factor that happens in so many relationships, despite their best intentions to stay together.
But how can this be achieved in an affordable way?
Getting good advice from financial experts is a great place to start. The preparation is key:
Where are the bank accounts? Where are all the bank statements – are they only online and how can you access them?
Second Top Tip is to visit an accountant early as possible
Don’t bury your head in the sand. Drop the kids at the school gates and get that meeting with an accountant organised as early as possible.
Third Top Tip is that business valuations take time!
If you have a business to value, allow plenty of time for an accountant to get a realistic and fair valuation.
Ask for help!
Please don’t try to do this alone. If you speak with a Financial Advisor (it doesn’t have to cost anything for the consultation) then you will be able to make some accurate assessments of what each of you will need in order to live separate lives, whilst also making sure proper protection is in place. If something happens to the main carer, the other parent won’t find it easy to replace them for the money that a parent will accept to run the home, feed and care for the children 24/7, so insurances and a Will need to be part of the financial arrangements if they are not already in place.
“If there are children involved you may need to work out who the children will be living with – do you want to remain fairly close to each other so the children can alternate between both houses? Do you need to have two houses to accommodate everyone? These are all things that an advisor can aim to help you calculate if they are possible.” Sheila Bailey: Willow Private Finance
If one or both of you have pensions and or properties and investments, then sitting down with a financial planner is a very good idea. They can help calculate a fair way to split those assets and also provide a framework for ensuring longer term financial security whether you stay together or split.
“As the daughter of a broken marriage, I understand how hard divorce can be and I know the last thing you want to be worrying about is your finances. However, by seeing the correct professional it is not as daunting as you may think. We don’t expect you to know anything or everything – your needs and objectives are the most important thing to us and we will do all we can to help you to meet those goals. The meeting is at our expense, therefore no charge to the client.” Lottie Kent, Riverside Financial Consultants
“I have deep and lengthy personal experience of going through the full divorce process including four separate court hearings, and I would now like to utilise my knowledge in this area, supplementing it with my accountancy and financial adviser qualifications, and help guide couples who are creating a Cohabitation Agreement to avoid later conflict. I offer no fee consultation meetings until such a time as the client is ready to make financial decisions re. investments, tax planning, pensions etc; which makes me not only highly qualified to support clients with their financial planning, but also they can talk and meet with me with no obligation or cost whilst they ascertain what services they may or may not need.” Peter Greenwood, Greenwood Wealth Solutions” Peter Greenwood, Greenwood Wealth Solutions
What if agreement is hard to reach?
You don’t want to end up breaking up just because of arguing over the Cohabitation Agreement!
One of the key reasons whey so many couples fail to take the step of creating a Cohabitation Agreement may simply be the fear of having to talk about what they want and what they need. Ironically, the very process of creating such an agreement could result in the strengthening of that relationship because of the increase in communication, and the sense of security that it can bring, especially to the main carer of the children whose career and financial prospects may have been compromised through having a family.
But society still seems to frown, on women in particular, who wish to intelligently discuss money matters with their partner. Apparently, it’s ‘unromantic’.
So how do you turn the process of creating a Cohabitation Agreement or (if you are legally married) a Pre or Postnup, into a process that will be a boost to your relationship as a whole?
That is the subject of my next article……