23 Dec 2011

Cohabitation Agreements - Why you should have one

Cohabitation Agreements - Why you should have one

Isabelle Douglas, Family Lawyer discusses the requirement for a Cohabitation Agreement when you purchase a property with your partner or move in together.

Isabelle Douglas, Family Lawyer discusses the requirement for a Cohabitation Agreement when you purchase a property with your partner or move in together.

When a couple embark upon cohabitation, whether by way of purchasing a property together or residing together in a property which one of them owns, many will not give consideration to how the financial and property matters arising from their cohabitation will be dealt with on their separation or death.  However, it can be very important that provision is made for such eventualities and by entering into a comprehensive Cohabitation Agreement at the outset, cohabitants can spare themselves considerable time and expense should their relationship subsequently end by way of separation or death.

Purchasing a property in joint names

Following the global recession, mortgage lenders rarely lend prospective purchasers 100% of the purchase price required to buy a property and, therefore, one or both parties will be required to partly fund the purchase by way of a cash deposit.  Also, once the parties are cohabiting, one party may contribute more towards the repayment of the mortgage and other household outgoings each month than the other.  In the absence of a Cohabitation Agreement, the equity in the property or the proceeds of any sale would fall to be divided in terms of the Title, regardless of the parties’ respective financial contributions towards the property during their relationship.  In cases where this outcome would not produce a fair result for both parties, it is essential that the parties enter into a Cohabitation Agreement if they wish to protect their respective investments. 

Where a property is jointly owned, it is also necessary to consider how the property will be dealt with on the death of either party.  The Title to the property will either contain a special destination, whereby each party holds an independent “pro indiviso” share in the property, or a survivorship destination.  Where the Title is taken in “pro indiviso” shares, the deceased’s interest in the property will pass to the beneficiary or beneficiaries named in their Will.  Where there is a survivorship destination, the deceased’s interest will automatically pass to the joint owner.  However, there can be situations where either option is insufficient to reflect the parties’ intentions and where this is the case, a Cohabitation Agreement is an effective mechanism for ensuring the parties’ wishes will be given effect to. 

Cohabiting in one party’s property

Where a couple cohabit together in a property owned by only one of the parties, they may intend in the event of their separation, that the non-owning cohabitant will not make any financial claim in respect of the property.  Alternatively, the non-owning cohabitant may be making financial contributions towards the property (either by way of a monthly payment towards household outgoings or a capital payment towards home improvements) and wish to be reimbursed for this.  A Cohabitation Agreement can give effect to the arrangements the parties have made in this regard and ensure that both parties are certain as to their position in the event of separation.

Family Law (Scotland) Act 2006

In terms of the Family Law (Scotland) Act 2006, a couple who are living together as if they are husband and wife are entitled to make financial claims against one another on separation or death.  In addition to regulating the ownership of heritable property, a Cohabitation Agreement gives the parties an opportunity to determine how the provisions of the Family Law (Scotland) Act 2006 will apply to their relationship.

No Cohabitation Agreement?

In the absence of a Cohabitation Agreement, you may require to resort to potentially costly and lengthy litigation against your former partner on your separation to seek to recover any sums you believe you are entitled to as a result of your cohabitation or to have a jointly owned property sold.  The outcome of Court action is difficult to predict with any certainty but will undoubtedly result in the separation process being far more stressful and upsetting that it might have been.

In short, a Cohabitation Agreement will minimise the potential for conflict and litigation in the future.  We would strongly recommend that if you are considering cohabitation, you should seek independent legal advice at the earliest possible opportunity to ensure that you are fully advised and your interests are protected as far as possible.

Isabelle Douglas, Senior Solicitor

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