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Moving with the times

In recent times, couples seeking to progress a relationship are choosing the modern approach of moving in together rather than the more traditional route of marriage.  It may come as a surprise to many that unmarried couples are not afforded the same level of protection as married couples and there is no such thing as a ‘common law marriage’ no matter how long you have lived together. It is therefore extremely important that parties each receive their own legal advice to ensure their financial interests are protected. Whilst it may not be the most romantic thing to do it is really important that you communicate with your partner about the financial arrangements and intentions early on.

Cohabitants beware

If you are looking to move in with your partner (but remain unmarried) you should think about how to protect yourself financially.  It is necessary to think about how the property purchase will look, for example will one of you be named as a legal owner or both? Further, you should consider what contributions you will each make to the initial purchase price, who will pay for the cost of the purchase including any stamp duty land tax and how will the outgoings on the property be paid going forward? How will the equity or any net sale proceeds upon sale be divided between you and will this be based on your initial contributions and mortgage payments?

Cohabitation agreements

One option to ensure you are both protected is to enter into a Cohabitation Agreement.  A Cohabitation Agreement is a written, signed document outlining who owns what at the time of the agreement and in what proportions. The Agreement can also include who will be responsible for the mortgage and other household outgoings and how any other property, assets or income should be treated if the relationship ends. These sorts of agreements provide clarity as to what rights and interests you have in the property should there be any dispute in the future. This is important for cohabiting couples as living with someone for a certain period of time does not mean that you become automatically entitled to some financial support or to an interest in property.

Declarations of Trust

Another option is to enter into what is called a “Declaration of Trust”. A Declaration of Trust is a written agreement which sets out the beneficial ownership in a property, i.e who would be entitled to the net sale proceeds upon sale or any rental income and in what shares. For example if you are contributing unequal amounts to the purchase price and/or you are paying unequal amounts towards the mortgage you should consider a Declaration of Trust. This document can outline what is to happen to the net sale proceeds upon sale or any rental income if the property is privately rented in the future. Without this document, the general rule is that the equity in the property will be divided in accordance with how you legally own the property (so, if you jointly own the property, this could be 50% or if the property is registered in one name then that party would receive 100%) unless you can evidence that the intention was different.

What can happen if you don’t have a declaration of trust?

Without a Declaration of Trust in place, later legal disputes can arise which can end with a formal application being made to the Court under the Trust of Land and Appointment of Trustees Act 1996. Should a formal application be necessary, legal costs can be significantly high and the unsuccessful party could be ordered to pay the successful party’s costs as well as their own.

It is therefore really important for parties to set out their intentions at the outset by seeking the appropriate legal advice and recording the agreement in either a Declaration of Trust or a Cohabitation Agreement.

Contact Our Family Lawyers

For further advice contact a member of the family team on 020 8 363 4444 or complete our online contact form.

This blog has been produced for guidance purposes only and information is correct at the time of writing but should not be taken as legal advice.